Scandinavian Working Papers in Economics

Working Paper Series,
Uppsala University, Department of Economics

No 2012:10: Marriage Stability, Taxation and Aggregate Labor Supply in the U.S. vs. Europe

Indraneel Chakraborty (), Serhiy Stepanchuk () and Hans A. Holter ()
Additional contact information
Indraneel Chakraborty: Department of Economics, Postal: Southern Methodist University
Serhiy Stepanchuk: Magyar Nemzeti Bank
Hans A. Holter: Department of Economics, Postal: Uppsala University, P.O. Box 513, SE-751 20 Uppsala, Sweden

Abstract: Americans work more than Europeans. Using micro data from the U.S. and 17 European countries, we study the contributions from demographic subgroups to these aggregate level di erences. We document that women are typically the largest contributors to the discrepancy in work hours. We also document a negative empirical correlation between hours worked and di erent measures of taxation, driven by men, and a positive correlation between hours worked and divorce rates, driven by women. Motivated by these observations, we develop a life-cycle model with heterogeneous agents, marriage and divorce and use it to study the impact of two mechanisms on labor supply: (i) di erences in marriage stability and (ii) di erences in tax systems. We calibrate the model to U.S. data and study how labor supply in the U.S. changes as we introduce European tax systems, and as we replace the U.S. divorce and marriage rates with their European equivalents. We nd that the divorce and tax mechanisms combined explain 58% of the variation in labor supply between the U.S. and the European countries in our sample.

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

JEL-codes: E24; E62; H24; H31; J21; J22

63 pages, May 27, 2012

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