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dc.contributor.authorJacobs, Basen
dc.date.accessioned2008-04-11-
dc.date.accessioned2009-07-28T08:30:26Z-
dc.date.available2009-07-28T08:30:26Z-
dc.date.issued2008-
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
dc.language.isoengen
dc.publisher|aCenter for Economic Studies and ifo Institute (CESifo) |cMunichen
dc.relation.ispartofseries|aCESifo Working Paper |x2277en
dc.subject.jelE2en
dc.subject.jelE6en
dc.subject.jelH2en
dc.subject.jelH5en
dc.subject.jelI2en
dc.subject.jelI3en
dc.subject.jelJ2en
dc.subject.ddc330en
dc.subject.keywordskill formationen
dc.subject.keywordhuman capitalen
dc.subject.keywordlabor supplyen
dc.subject.keywordretirementen
dc.subject.keywordtax policyen
dc.subject.keywordbenefit systemsen
dc.subject.keywordpension policyen
dc.subject.keywordwelfare stateen
dc.subject.stwArbeitsangeboten
dc.subject.stwLebenszyklusen
dc.subject.stwBildungsverhaltenen
dc.subject.stwAltersgrenzeen
dc.subject.stwEinkommensteueren
dc.subject.stwSteuerwirkungen
dc.subject.stwSozialstaaten
dc.subject.stwKritiken
dc.subject.stwTheorieen
dc.subject.stwEuropaen
dc.titleIs Prescott right?: welfare state policies and the incentives to work, learn and retire-
dc.typeWorking Paperen
dc.identifier.ppn56145180Xen
dc.rightshttp://www.econstor.eu/dspace/Nutzungsbedingungenen

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