How Does Taxation Affect Hours Worked in EU New Member States?

36 Pages Posted: 10 Jul 2019

See all articles by Agustin Velasquez

Agustin Velasquez

University of Geneva - Graduate Institute, Geneva (IHEID)

Svetlana Vtyurina

International Monetary Fund (IMF)

Date Written: June 2019

Abstract

Hours worked vary widely across countries and over time. In this paper, we investigate the role played by taxation in explaining these differences for EU New Member States. By extending a standard growth model with novel data on consumption and labor taxes, we assess the evolution of trends in hours worked over the 1995-2017 period. We find that the inclusion of tax rates in the model significantly improves the tracking of hours. We also estimate the elasticity of hours (and its different margins) to quantify the deadweight loss introduced by consumption and labor taxes. We find that these taxes explain a large share of labor supply differences across EU New Member States and that the potential gains from policy actions are noteworthy.

Keywords: Tax revenue, Tax exemptions, Tax incentives, Tax rates, Fiscal policy, hours worked, labor supply, labor tax, consumption tax, EU new member states, NMS, social security contribution, security contribution, employment rate

JEL Classification: E2, J24, H24, J22, E01, K34, H2, H71

Suggested Citation

Velasquez, Agustin and Vtyurina, Svetlana, How Does Taxation Affect Hours Worked in EU New Member States? (June 2019). IMF Working Paper No. 19/130. Available at SSRN: https://ssrn.com/abstract=3417723

Agustin Velasquez (Contact Author)

University of Geneva - Graduate Institute, Geneva (IHEID) ( email )

Geneva
Switzerland

Svetlana Vtyurina

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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