The Marginal Cost of Public Funds in OECD Countries. Hours of Work Versus Labor Force Participation

Henrik Jacobsen Kleven, Claus Thustrup Kreiner and Claus Thustrup Kreiner
Authors registered in the RePEc Author Service: Claus Thustrup Kreiner

No 935, CESifo Working Paper Series from CESifo

Abstract: A central finding of the modern labor market literature is that labor supply responses tend to be concentrated along the extensive margin (labor force participation) rather than the intensive margin (hours of work). Yet, the literature on the marginal cost of public funds (MCF) focuses solely on the intensive margin. In this paper we demonstrate that it is important to incorporate extensive labor supply responses into the analysis. Firstly, MCF becomes a function of average taxes, rather than just marginal taxes. Secondly, participation decisions and thus MCF depend on the magnitude of transfers for those out of work. Our calculations for 23 OECD countries reveal that the MCF becomes substantially higher once the participation e.ect is accounted for. This is especially the case for continental European countries where average taxes are high and benefit systems are generous.

Date: 2003
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo_wp935.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_935

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().