Marriage Stability, Taxation and Aggregate Labor Supply in the U.S. vs. Europe

Abstract

Americans work more than Europeans. Using micro data from the United States and 17 European countries, we document that women are typically the largest contributors to the cross-country differences in work hours. We also show that there is a negative relation between taxes and annual hours worked, driven by men, and a positive relation between divorce rates and annual hours worked, driven by women. In a calibrated life-cycle model with heterogeneous agents, marriage and divorce we find that the divorce and tax mechanisms together can explain 45% of the variation in labor supply between the United States and the European countries.

Keywords: Aggregate Labor Supply, Taxation, Marriage, Divorce, Heterogeneous Households

JEL Classification: E24, E62, H24, H31, J21, J22