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dc.contributor.authorJacobs, Basen_US
dc.date.accessioned2008-04-11en_US
dc.date.accessioned2009-07-28T08:30:26Z-
dc.date.available2009-07-28T08:30:26Z-
dc.date.issued2008en_US
dc.identifier.urihttp://hdl.handle.net/10419/26322-
dc.description.abstractThis paper bolsters Prescott’s (2004) claim that high taxes are responsible for lacklustre labor market performance in continental European countries. We develop a lifecycle model with endogenous skill formation, endogenous labor supply, and endogenous retirement. Labor taxation distorts not only labor supply, but also education and retirement decisions. Actuarially unfair pensions further exacerbate labor tax distortions on retirement. Education subsidies can nevertheless cushion the adverse impact of taxation on skill formation. Feedbacks between education, labor supply, and retirement are important. The model is simulated with realistic behavioral elasticities that are consistent with microeconometric evidence. If, besides labor supply, also learning and retirement are endogenous, the uncompensated (compensated) elasticity of the tax base equals 0.46 (0.85), which is more than twice as large as the standard uncompensated (compensated) labor supply elasticity of 0.18 (0.40). Furthermore, life-cycle interactions between education, working and retirement are quantitatively important and the interactions raise all behavioral elasticities substantially. For example, the uncompensated labor supply elasticity increases with one-half due to life-cycle interactions (to 0.26). We demonstrate that low European labor supply can be fully explained by taxation without relying on unrealistically high labor supply elasticities. Reducing labor market distortions, cutting benefit levels, lowering tax rates, and making (early) retirement actuarially fairer, therefore boosts labor supply, delays retirement, and stimulates skill formation. In addition, high education subsidies are needed in large welfare states to off-set explicit and implicit tax burdens on human capital investment.en_US
dc.language.isoengen_US
dc.publisherCESifo Münchenen_US
dc.relation.ispartofseriesCESifo working paper 2277en_US
dc.subject.jelE2en_US
dc.subject.jelE6en_US
dc.subject.jelH2en_US
dc.subject.jelH5en_US
dc.subject.jelI2en_US
dc.subject.jelI3en_US
dc.subject.jelJ2en_US
dc.subject.ddc330en_US
dc.subject.keywordskill formationen_US
dc.subject.keywordhuman capitalen_US
dc.subject.keywordlabor supplyen_US
dc.subject.keywordretirementen_US
dc.subject.keywordtax policyen_US
dc.subject.keywordbenefit systemsen_US
dc.subject.keywordpension policyen_US
dc.subject.keywordwelfare stateen_US
dc.subject.stwArbeitsangeboten_US
dc.subject.stwLebenszyklusen_US
dc.subject.stwBildungsverhaltenen_US
dc.subject.stwAltersgrenzeen_US
dc.subject.stwEinkommensteueren_US
dc.subject.stwSteuerwirkungen_US
dc.subject.stwSozialstaaten_US
dc.subject.stwKritiken_US
dc.subject.stwTheorieen_US
dc.subject.stwEuropaen_US
dc.titleIs Prescott right?: welfare state policies and the incentives to work, learn and retireen_US
dc.typeWorking Paperen_US
dc.identifier.ppn56145180Xen_US
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungen-
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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