
Taxes, Natural Resource Endowment, and the Supply of Labor: New Evidence
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| Author: | Dr. Belkacem Laabas , Dr. Weshah Razzak | |
| Series: | API/WPS 1005 | |
| Language: | English | |
| Publisher: | Arab planning institute - Kuwait | |
| Description: |
Using the work – leisure choice model, this paper computes equilibrium hours-worked for a number of Arab,
non-oil-producing and labor-abundant countries and major oil-producing, tax-free and labor-scarce countries,
for which actual data are unavailable. We estimate hours-worked for the G7, and show that the model fits the
data well. We use this evidence as a yardstick to evaluate the model for the Arab countries for which no actual
data are available. The model explains hours-worked in Arab, non-oil-producing countries well, but it fails to
explain hours-worked in the oil-producing – tax-free countries. With the effective marginal tax rate close to
zero, hours-worked increase significantly. We show that natural resource endowment is a required predicting
factor for the model in this case. It turned out that natural resource capital acts exactly as a tax. In other
words, it increases the wedge between real wages and marginal productivity, hence, natural resource wedge.
The higher the natural resource endowment the less hours people worked. Most importantly, we provide a wider
support to the model and confirm that the labor supply is elastic in all Arab countries. This finding confirms
previous research that workers respond to incentives, which has serious implications for tax and social security
policies. We also provide some policy simulation pertinent to poverty and welfare.
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Free Download Edition | |
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| Date: | 2010 |
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| Number of Pages: | 30 |
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| File size : | 472KB |
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| Delivery media: | Download file |
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