Taxes, Natural Resource Endowment, and the Supply of Labor: New Evidence

Weshah Razzak and Belkacem Labas

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: Hours-worked; labor wedge; natural resource endowment; poverty; welfare (search for similar items in EconPapers)
JEL-codes: E0 E01 E62 J22 (search for similar items in EconPapers)
Date: 2010-03
New Economics Papers: this item is included in nep-ene
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Taxes, Natural Resource Endowment, and the Supply of Labor: New Evidence (2015)
Working Paper: Taxes, Natural Resource Endowment, and the Supply of Labor: New Evidence
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:21634

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