Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade
This paper evaluates the Prescott (2004) hypothesis that permanently higher payroll taxes fully explain the decline in number of market hours worked in Europe (relative to America) over three decades. The Prescott model made assumptions that, in steady state, left out any incentive for either intern...
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sg-smu-ink.soe_research_all-10142017-06-08T06:16:37Z Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade HOON, Hian Teck This paper evaluates the Prescott (2004) hypothesis that permanently higher payroll taxes fully explain the decline in number of market hours worked in Europe (relative to America) over three decades. The Prescott model made assumptions that, in steady state, left out any incentive for either international capital mobility or international exchange of goods. We study a one-good model where the imposition of higher payroll taxes in one region leads to higher domestic real interest rate in that region. As a result, there are incentives for international capital outflows into the high payroll tax region with the consequence that number of market hours worked in the low payroll tax region also decline. With identical tastes and rate of time discount across the two regions, we find that the number of hours worked in the market, home work, and leisure are equalized across the two regions. In the multi-good model, when factor price equalization holds so free trade acts as a substitute for factor mobility, we show that there is also equalization of market work, home work, and leisure across the two regions. 2014-04-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soe_research_all/15 https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1014&context=soe_research_all http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School of Economics eng Institutional Knowledge at Singapore Management University Bias High dimension Refit Regularization. Labor Economics Labor Relations Taxation |
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Bias High dimension Refit Regularization. Labor Economics Labor Relations Taxation HOON, Hian Teck Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade |
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This paper evaluates the Prescott (2004) hypothesis that permanently higher payroll taxes fully explain the decline in number of market hours worked in Europe (relative to America) over three decades. The Prescott model made assumptions that, in steady state, left out any incentive for either international capital mobility or international exchange of goods. We study a one-good model where the imposition of higher payroll taxes in one region leads to higher domestic real interest rate in that region. As a result, there are incentives for international capital outflows into the high payroll tax region with the consequence that number of market hours worked in the low payroll tax region also decline. With identical tastes and rate of time discount across the two regions, we find that the number of hours worked in the market, home work, and leisure are equalized across the two regions. In the multi-good model, when factor price equalization holds so free trade acts as a substitute for factor mobility, we show that there is also equalization of market work, home work, and leisure across the two regions. |
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HOON, Hian Teck |
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HOON, Hian Teck |
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HOON, Hian Teck |
title |
Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade |
title_short |
Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade |
title_full |
Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade |
title_fullStr |
Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade |
title_full_unstemmed |
Effects of labor taxes on hours of market and home work: The role of international capital mobility and trade |
title_sort |
effects of labor taxes on hours of market and home work: the role of international capital mobility and trade |
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Institutional Knowledge at Singapore Management University |
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2014 |
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https://ink.library.smu.edu.sg/soe_research_all/15 https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1014&context=soe_research_all |
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