Now here’s a paper whose conclusionsÂ should make John Howard and Ross Gittins both nod their heads.
Labour Taxes and Work Hours in Australia
Anton Hallam & Ernst Weber
In the 1970s, work hours in Europe were similar to work hours in America, but today Europeans work less than Americans. Prescott (2004) attributes the decline in European work hours to an increase in the effective marginal tax rate on labour income. The Australian labour market experience confirms that the taxation of labour income is an important determinant of the decision to work. In Australia taxes and work hours did not change much in the long-run, but Australian work hours rebounded after a temporary increase in taxes in the 1980s. The resilience of Australian work hours suggests that a return to the tax rates of the 1970s would restore the European labour supply.
The analysis is pure time series, with the problems that normally entails (what if something else changed to affect both taxes and work hours?). But the authors’ methodology is refreshingly upfront – right down to showing us their Excel formulas in the appendix tables.