Productivity, Taxes and Hours Worked in Spain:

Transcription

1 December 2004 Produciviy, Taxes and Hours Worked in Spain: Juan C. Conesa Universia Pompeu Fabra, Cenre de Referència d Economia Analíica, Universia de Barcelona, and Cenre de Recerca en Economia del Benesar Timohy J. Kehoe Universiy of Minnesoa and Federal Reserve Bank of Minneapolis Absrac In 1975 hours worked per adul were higher in Spain han in he US, one decade laer hey were 40 percen smaller. This paper quaniaively assesses he impac of he evoluion of TFP and axes on he evoluion of aggregae hours worked in Spain. Solow decomposiion shows ha he sharp decrease in hours worked per adul is responsible for he negaive comovemen of TFP and oupu per adul. We show ha as mcu as 80 percen of he decrease in hours worked can be accouned for by he evoluion of axaion in an oherwise sandard neoclassical growh model. Finally, we provide a comparison wih he experience of France over he same period and show ha he model fis well he French experience over he same ime period. *This work has benefied from ousanding research assisance by Kim Ruhl and from commens by paricipans a seminars a he Federal Reserve Bank of Minneapolis, Florida Sae Universiy, Universia de Barcelona, Universia Pompeu Fabra, Universia Rovira i Virgili, and 2003 Workshop of he Jornadas Béicas de Macroeconomía Dinámica. Conesa acknowledges financial suppor from he Fundación Ramón Areces, Miniserio de Ciencia y Tecnología, SEC , and he Generalia de Caalunya, SGR

2 1. Inroducion Wha has driven oupu growh and flucuaions in Spain over he pas hree decades? Wha has been he impac of he evoluion of axes on aggregae hours worked and oupu? We answer hese quesions using he mehodology developed by Cole and Ohanian (1999) and Kehoe and Presco (2002) o sudy grea depressions. This mehodology relies on growh accouning and a simple general equilibrium growh model. Our growh accouning indicaes ha, over he period 1970 o 2000, he major facor in deermining economic flucuaion in Spain has been flucuaions in aggregae hours worked, raher han flucuaions in produciviy growh or in capial accumulaion. Our applied general equilibrium analysis indicaes ha mos of he flucuaions in hours worked can be accouned for by changes in axes. In paricular, he model accouns for more han 70 percen of he sharp decline in hours worked over he period he evoluion of aggregae hours worked in Spain is consisen wih he evoluion of axes from a neoclassical growh perspecive. Moreover he sharp decrease in hours worked happened over a ime period wih high oal facor produciviy growh. As a way of comparison, we use he same mehodology for he French case and we find ha he model economy is consisen wih he daa for he French economy as well. Again, i is he evoluion of axes and no lack of produciviy growh wha drives hours worked and oupu per capia. The mehodology used is he one inroduced in Kehoe and Presco (eds., 2002), following he seps of a similar mehodology proposed in Cole and Ohanian (1999) o he sudy of he US Grea Depression. In he firs sep, growh accouning is used o quanify he conribuion of Toal Facor Produciviy (from now on, we refer o i as TFP), capial deepening and aggregae hours worked for he dynamics of oupu relaive o rend. Nex, a sandard neoclassical growh model is consruced, where a sand-in household is choosing hours worked, consumpion and capial holdings, aking as given he deerminisic evoluion of TFP and ax raes. Such a mehodology provides a quaniaive ool, a he same ime ha idenifies he relevan margins for poenial candidae explanaions. Prior o 1975 TFP and oupu per working age person perfecly comoved in Spain. However, afer 1975 his is no he case anymore. The reason is he beginning of a generalized process of decreasing aggregae hours worked. Tha observaion is also presen

3 in he French economy and is in sharp conras wih he US experience, where hours worked per adul have been roughly consan, and even increasing during he las fifeen years. Spain is jus an exreme case of European-like labor marke dynamics. The comparison wih France shows ha he decrease in hours worked sared laer in ime (1975 as compared o he lae sixies), bu was quaniaively sharper. Such differenial labor marke experiences beween US and Europe have been exensively sudied in he lieraure. Mos of he lieraure in his research area has focused on he impac of differences in labor marke insiuions. Benolila and Berola (1990), Blanchard and Jimeno (1995) or Blanchard and Summers (1986) among ohers, focus on he role of insiuions and labor marke resricions. Sargen and Ljungqvis (1999, 2002) focus on he ineracion beween shocks and insiuions in a labor search model. Presco (2002), however, argues ha differenial axaion alone migh accoun for he differences in he curren level of aggregae hours worked beween France and he US. To our knowledge, hough, ours is he firs aemp o quanify he implicaions of he evoluion of axes for he evoluion of aggregae hours worked. Our analysis shows ha he evoluion of he axaion of consumpion and facor earnings can accoun for 80% of he secular rend decrease in hours worked in Spain and virually all of he decrease in France. We show ha he behaviour of aggregae hours worked is in line wih he predicions of sandard neoclassical heory, in conras wih mos heoreical work relying in differences in labor marke insiuions. Of course our exercise is silen abou he disribuion of aggregae hours worked wihin he working age populaion. Also, he exercise proposed allows us o idenify ime periods in which daa deviaes from heory in a quaniaively imporan way. We wan o idenify hese episodes, since hey sugges avenues for fuure research. Several papers have ried o undersand wheher Spain displays differenial feaures in erms of employmen dynamics han oher European economies. Our exercise seems o agree wih several oher papers ha find he Spanish economy much more in line wih oher economies han oher auhors have ried o argue. In paricular, Ziliboi and Marimon (1998) find ha condiioning for iniial secoral composiion of oupu here is no subsanial difference in Spanish employmen dynamics relaive o he res of European economies. Also, Jimenez-Marin and Sanchez-Marin (2003) conribue o undersanding 3

4 he role of reiremen incenives provided by he Spanish Social Securiy sysem, which is a non-rivial componen of he fall in aggregae hours worked. 4

5 2. The Growh Accouning Exercise In order o consruc he growh accouning exercise we use Naional Accouns using he Sysem of Naional Accouns (SNA93) and daa on hours worked per worker and employmen raes by he corresponding counry Labor Force Surveys. We consruc a series of capial by using he Perpeual Invenory Mehod given he available series of invesmen (saring back in 1954) and a value for he consan depreciaion rae, chosen o be δ = This value is chosen o be consisen wih he raio of depreciaion o GDP observed in he daa. The sandard growh accouning is done as in Kehoe and Presco (2002), by using an aggregae producion funcion of he form: Y = AK L α 1 where A is TFP, and Dividing by working-age populaion, according o he following expression: K and L are he capial and labor inpus respecively. N, we can decompose he evoluion of oupu α 1 1 α 1 α A Y K L = N Y N Assigning a value for he capial share α we are ready o perform our decomposiion. We measure direcly α from he daa and obain a value of Our esimae is slighly higher han he esimaed value in Gollin (2002), who argues for a common across counries capial share of income α = 0.3. Noice ha his number is very similar o he EU esimae of (see European Economy (1994)). Along a balanced growh pah he capial-oupu raio, K / Y, and hours worked per working-age person, L / N, are consan over ime. Therefore oupu per working-age 5

6 person should grow a rae implied by he TFP facor, 1 1 A α. Firs, we repor he growh accouning exercise for he US in Figure 1. Noice he conras wih he case of Spain, as repored in Figure 2. Clearly, afer 1975 Spain deviaes from balanced growh pah. A similar conclusion can be reached for he case of France, repored in Figure 3. Noice ha, while in he period , he daa seems o indicae a Balanced Growh Pah for he case of Spain, subsequen o 1975 he TFP facor and oupu per adul sar diverging. The reason is he dramaic fall in aggregae hours worked. Figure 4 displays he evoluion of aggregae hours worked. Noice ha he fall in aggregae hours worked saring in 1975 is due o boh a fall in hours worked per worker and a fall in employmen raes. However, he main focus of his paper is o undersand he conribuion of he evoluion of axes for his observed fall in aggregae hours worked, bu no on is disribuion across he populaion. Such a sharp decline in aggregae hours worked is in line wih he economic experiences of oher European economies. I is illusraive o compare he evoluion of hours worked in Spain wih hose in France and he US. This comparison is repored in Figure 5. Noice ha France and Spain have experienced a similar drop in hours worked beween 1960 and However, he French case has been a more coninuous and smooh process aking place since 1960, while he Spanish experience was concenraed in he decade beween 1975 and Neverheless, he French economy experience is similar o ha of Spain, in he sense ha he deviaions of oupu relaive o produciviy are generaed by falling hours worked, see Figure The Theoreical Framework The simples heoreical framework one could wrie is one in which a sand-in infinielylived consumer is going o choose sequences of consumpion, hours worked and capial, aking as given he evoluion of TFP and axes. The producion side of he economy akes place hrough a sand-in producer operaing he aggregae echnology aking compeiive 6

7 prices as given. Finally, here is a governmen ha levies proporional axes on consumpion, labor earnings and capial earnings, and uses he proceeds o finance a lumpsum ransfer o he consumers in a balanced budge fashion. We will consider 1970 as our saring poin, five years before he changes which consiue he main objec of his paper ake place. In such a framework he sand-in consumer solves he following maximizaion problem: max β [ γ log C + (1 γ)log( N h L)] = 1970 s.. (1 + τ ) C + K K c + 1 k = (1 τ ) wl + (1 τ )( r δ) K + T. K = K Here N denoes he number of working-age populaion in he economy and h denoes he yearly disposable ime endowmen of each individual. The choice variables are hen sequences of aggregae consumpion, aggregae capial sock and aggregae hours worked, denoed respecively by C, K, L. In Secion 8 we provide a sensiiviy analysis wih respec o he preferences specificaion, as well as wih respec o he assumpion ha all ax proceeds are lump-sum rebaed o he consumers. For each period he resource consrain in his economy is given by: C K K AK L α 1 α (1 δ ) =, = 1970,... And he governmen budge consrain implies: c k τ C + τ wl + τ ( r δ) K = T, = 1970,... The problem of he sand-in producer can be characerized by he following pricing rules for boh facors of producion: 7

8 α w = (1 α) AK L α r = αak L δ, = 1970,... α 1 1 α Our benchmark specificaion implies ha all ax proceeds are rebaed o he consumer in a lump-sum fashion. 1 This is equivalen o viewing governmen expendiure as a perfec subsiue for privae consumpion, and i is a reasonable absracion as long as ax proceeds are mainly used o finance ransfers o consumers (social securiy pensions, unemploymen insurance, ) or o finance publicly provided consumpion goods and services (healh care, educaion, ) ha could alernaively be provided hrough he privae secor. In fac, looking a he composiion of governmen expendiure we find ha in he year 1996 he sum of pensions, healhcare, unemploymen insurance and educaion in Spain amouned o 63% of he governmen oulays (25% of GDP). Noice ha his assumpion is no neural in deermining he implicaion of axes for hours worked, since i generaes a much bigger response of hours worked o changes in axes. See Presco (2002) for a discussion of his issue. In Secion 8 we provide a sensiiviy analysis wih respec o his issue. In paricular, we go o he oher exreme and explore he hypohesis ha all governmen consumpion is wased or alernaively finances he provision of public goods ha ener separably in he uiliy funcion. 4. The Evoluion of Effecive Tax Raes In order o obain esimaes of he evoluion of effecive marginal ax raes we use he same mehodology proposed in Mendoza e al. (1994). However, here are wo main differences; firs, we aribue a fracion of household s non-wage income o labor income; second, we measure marginal as compared o average ax raes. Esimaing he effecive marginal ax raes requires aking ino accoun he progressiviy of income axes. Taxaion of labor earnings can be decomposed ino income axaion and 1 A fracion of he ax proceeds, in Spain beween 18% and 24.5% depending of he year, are lump-sum rebaed hrough he progressiviy of income axaion. Since average ax raes are smaller han marginal ax raes, we should ax a marginal raes and hen have lump-sum ax rebaes. 8

9 payroll axes (mainly social securiy conribuions, ha are roughly proporional). Provided ha he relevan figure in erms of he disorionary implicaions is he marginal and no he average ax rae, we adjus our ax esimaes for boh capial and labor income. Calonge and Conesa (2003) have esimaed an effecive income ax funcion, as he one proposed in Gouveia and Srauss (1994), for he Spanish economy using disaggregaed daa aken direcly from ax reurns. They repor ha he aggregae marginal ax rae in Spain (compued as he increase in ax revenues if everybody s income were o increase by 1 percenage poin, 26.5%) is 1.83 imes bigger han he aggregae average ax rae (oal ax revenues divided by oal income, 14.5%). Hence, we adjus by 83% he axaion of households income in order o compue effecive marginal ax raes. Our final esimaes are repored in Figure 6. For a more deailed explanaion of he ax esimaes see Appendix A. 5. Numerical Experimen and Calibraion In he experimen we perform our heoreical economy will deermine he equilibrium evoluion of he endogenous variables, given he iniial capial sock in 1970 as measured in he daa. Our heoreical economy will reac o he evoluion of he exogenous variables, which are he evoluion of TFP as measured in he growh decomposiion exercise, he evoluion of he ax raes as esimaed from he daa and he evoluion of he working-age populaion as measured in he daa. Then, we will compare he evoluion of he main aggregae variables implied by he model wih hose observed in he daa. In order o deermine he value of he disposable ime endowmen of individuals, h, we assume ha each adul has a ime endowmen of 100 hours a week. Nex, we need o assign values o all he parameers in he model. The depreciaion rae δ is chosen so ha he raio of depreciaion o GDP coincides wih ha observed in he daa on average beween 1970 and Therefore, we choose 2000 K δ = so ha we obain δ / 31 = = 1970 Y Our esimae of he capial share in Spain is This esimae is obained by using he same naional accouning daa as he one used for he TFP accouning exercise and for he 9

10 esimaion of he marginal ax raes. In order o calibrae he preference parameers we use he firs order condiions from he household problem and he daa observaions for he period (hose are he years for which we have complee daa and are prior o he phenomenon we are ineresed in: he sharp fall in hours worker saring in 1975). Deriving he wo firs order condiions and rearranging we can wrie he value of he preference parameers as a funcion of daa observaions: (1 + τ ) C 1 β = (1 + τ ) 1 + (1 τ )( δ) c c k C r c (1 + τ ) C γ = c (1 + τ ) C + (1 τ ) w ( N h L) Using hese wo condiions and acual daa from we could compue a vecor of he parameers β and γ. The parameers we assign o our economy are he average of hese vecors. Given ha our goal is o quanify he implicaions of he evoluion of axes we will perform wo experimens. The firs one will deermine he evoluion of our heoreical economy if axes had sayed consan a heir iniial level in The second experimen will deermine he evoluion of he heoreical economy considering he evoluion observed for he ax variables. Then, we will compare boh oucomes. Noice hen ha he righ parameerizaion will depend crucially on he assumpion abou he evoluion of axes corresponding o hese wo experimens, yielding wo differen pairs of parameers. For he case in which we assume consan axes a he 1970 level we find he following parameer values: β = , γ = When axes are se equal o he acual esimaed values we find: β = , γ =

11 6. The Resuls Figure 7 illusraes he imporance of aking ino accoun he evoluion of ax raes for undersanding he evoluion of he Spanish economy during he las hree decades. The base-case model economy predicions are much more in line wih he daa han hose implied by he evoluion of TFP alone, ignoring he evoluion of axes. The model wih axes accouns for a sizeable fall in hours worked, see Figure 8. In fac, he order of magniude of his fall is capured well in he model economy: beween 1974 and 1994 (he ime wih he lowes value) hours worked per working-age person fall 41 percen in he daa and 31 percen in he model. Neverheless, he fall beween 1974 and 1985 is no as sharp in our base-case model economy as compared o he daa. Also, i fails o accoun for he recovery experienced by hours worked since In fac, several labor marke reforms have aken place since 1994 and migh be responsible for his deviaion of he model relaive o daa. Table 1 shows for differen subperiods he conribuion of he differen componens of GDP. I clearly shows how he model is no able o accoun for he evoluion of hours worked in he second par of he nineies, while he base case model does reasonably well in previous periods. This shows ha he labor marke reforms ha were underaken in he mid nineies have had a quaniaive impac. Finally, noice ha he model predicions regarding capial deepening fall shor of he daa experience as shown in Figure 9. Our model represens a closed economy, while capial inflows, ogeher wih a general process of financial liberalizaion, migh have played an imporan role in capial deepening for he Spanish economy. The exercise suggess ha he evoluion of axaion has no had a quaniaively imporan impac on ha margin. Neverheless, our exercise shows ha he key componen is he evoluion of hours worked, and ha he disorions inroduced by axes in he labor marke have had a non-negligible impac, especially if we compare he resuls in our base-case economy o he counerfacual of consan axes a he 1970 level. We do no wan o claim, however, ha oher fricions or insiuional feaures in he labor marke have no role in explaining he evoluion of hours worked. Indeed, ax revenues have been used o some exen o finance cerain insiuional programs such as unemploymen 11

12 insurance or publicly provided reiremen pensions. To he exen ha he increase in axes has been conemporaneous o he developmen of hese programs, alernaive explanaions are clearly correlaed wih he evoluion of axes. The quaniaive implicaions of alernaive model specificaions relaive o he daa can be found in Table An Insrucive Comparison: France We saw in Secion 2 ha he Spanish economy was in line wih he French experience, i.e. oupu falling shor of ha implied by he evoluion of produciviy due o a sharp decrease in aggregae hours worked. Now, we redo he exercise for he French economy and evaluae he impac of he evoluion of TFP and ax raes. The evoluion of axes is repored in Figure 10. Firs, we calibrae he French economy. The procedure followed is exacly he same as he one for Spain. In erms of echnology parameers he esimaed values are α = and δ = For he preference parameers, we obain β = , γ = in he case of a model wih consan axes; and β = , γ = in he model version wih acual axes. The base-case model does an impressive job in accouning for he evoluion of GDP, hours worked, and capial deepening in France. See Figures 11, 12 and 13, and Table 2. Presco (2002) argues ha he ax wedge in labor supply is responsible for he difference in hours worked beween Europe and he US. Our resuls relaive o he evoluion over ime are consisen wih i. This increases our confidence in he abiliy of our exercise o capure he main aggregae performance of acual economies. 8. Sensiiviy Analysis In his secion we evaluae how sensiive are our resuls o some of he key assumpions in our exercise. We will explore separaely he role of 4 key assumpions: 12

13 - The role of TFP growh, by comparing our resuls wih a counerfacual in which TFP would have grown a a consan rae. - We recalibrae he preference parameers using daa from he period in order o deermine how sensiive are he resuls o our choice of he ime period for he base-case calibraion. - The ineremporal elasiciy of subsiuion, by changing preferences o a CRRA specificaion wih higher han log curvaure. - The naure of governmen expendiure, by exploring he resuls under he assumpion ha governmen consumpion is wased or used o finance he provision of public goods ha ener he uiliy funcion separably. Table 3 summarizes he quaniaive implicaions for all of our sensiiviy analysis. Consan TFP Growh Consider he scenario in which TFP growh would have coninued over he enire period a he same average growh rae as i did during This way we can deermine he conribuion of he produciviy slowdown for economic performance over ha period. Our exercise shows ha under his alernaive scenario he model does equally well in accouning for he evoluion of aggregae hours worked, while i does wors in erms of he evoluion of he capial-oupu raio and oupu per capia. From ha we conclude ha produciviy as measured in TFP did no have any impac in he evoluion of hours worked. Recalibraing Preference Parameers o The key parameers are he preference parameers, and in order o deermine hose we used daa prior o The quesion now is o see o wha exen our resuls are sensiive o ha choice. In order o perform his sensiiviy analysis we recalibrae he preference parameers using daa for he period and we find values of β = , γ =

14 Under his alernaive parameerizaion hours worked are shifed downwards, so ha he model does beer in accouning for he low level of hours worked afer 1975, bu hen i is inconsisen wih he high levels observed prior o Also, he model does beer in erms of accouning for he evoluion of he capial-oupu raio. Preferences Specificaion In assuming log preferences we migh be biasing our resuls in he sense ha i implies an ineremporal elasiciy of subsiuion ha some economeric sudies focusing on individual behaviour migh find oo high. In order o evaluae he implicaions of his feaure for our resuls we change he specificaion of preferences o: = 1970 γ C Nh L β N N 1 γ φ 1 / φ where N is adul-equivalen populaion (we simply divide populaion by wo) and φ = 1. In order o perform our sensiiviy analysis we need o recalibrae he preference parameers in our economy. We find values of β = , γ = Our resuls show ha he model performs beer in accouning for he evoluion of hours worked, bu worse in accouning for capial accumulaion. Composiion of Governmen Expendiure In our heoreical framework governmen revenues are lump-sum rebaed o he consumers. Tha implies ha all ax revenues are eiher used o finance ransfers or used o finance consumpion and invesmen goods ha are perfec subsiues of consumer s individual choices. In his secion we show how he resuls migh change wih respec o his assumpion. In order o do so, we go o he oher exreme and consider all of governmen consumpion in he Naional Accouns o be hrown ino he ocean. Noice ha his is clearly an exreme 14

15 scenario since a lo of governmen consumpion finances goods ha could oherwise be provided by he privae secor (healh care, educaion, ). 9. Conclusions In his paper we have argued ha inroducing exogenously he evoluion of ax raes in a suiably parameerised neoclassical growh model can be used as an imporan ool for undersanding he labor marke experience in counries like Spain or France. This experimen allows he idenificaion of he relevan margins for undersanding he economic performance of acual economies, as well as idenifying deviaions of he model economy relaive o he daa suggesing avenues for fuure research. Noice ha his mehodology is in sharp conras wih a sream of he lieraure ha has focused on labor marke insiuions in order o undersand differenial labor marke experiences. We view our exercise as an illusraion of a mehodology for idenifying he main sources for poenial candidae explanaions. Needless o say, poenial explanaions migh well be correlaed, since he developmen of cerain insiuional feaures has been parallel o he increase in ax raes we observe in he daa. Our resuls show ha he evoluion of aggregae hours worked in Spain is roughly consisen wih neoclassical growh heory given he observed evoluion of axes and he size of he governmen. However, he compuaional exercise suggess ha capial accumulaion in Spain over he period has been higher han implied by he model economy. This is an ineresing feaure of our resuls since our heoreical exercise absracs from changes in rade policies as well as capial flows liberalizaion aking place over he period. As a comparison, when we use he same mehodology o examine he French experience we observe ha he model is in line wih he daa in erms of boh he evoluion of aggregae hours worked and capial deepening. This resuls are in sharp conras wih he main conclusions in oher similar sudies using he same mehodology, where he driving force was always he evoluion of oal facor produciviy. 15

16 References Benolila, S. and G. Berola (1990), Firing Coss and Labor Demand: How Bad is Eurosclerosis? Review of Economic Sudies 57, Blanchard, O. J. (2004), The Economic Fuure of Europe, NBER Working Paper Blanchard, O.J. and J. F. Jimeno (1995), Srucural Unemploymen: Spain versus Porugal, American Economic Review Papers and Proceedings 85, Blanchard, O. J. and L. H. Summers (1986), Hyseresis and he European Unemploymen Problem, NBER Macroeconomics Annual, 1. Cambridge, MA, MIT Press. Boscá, J. E., M. Fernández y D. Taguas (1999), Esrucura imposiiva en los países de la OCDE, Miniserio de Economía y Hacienda. Calonge, S. and J. C. Conesa (2003), Progressiviy and Effecive Income Taxaion in Spain: 1990 and 1995, Universia de Barcelona. Cole, H. L. and L. E. Ohanian (1999), The Grea Depression in he Unied Saes from a Neo-classical Perspecive. Federal Reserve Bank of Minneapolis Quarerly Review 23, European Commission (2004), Saisical Annex, European Economy 6. Gollin, D. (2002), Geing Income Shares Righ, Journal of Poliical Economy 110, Gouveia, M. and R. P.Srauss (1994), Effecive federal individual income ax funcions:an exploraory empirical analysis, Naional Tax Journal 47, Hayashi, F. and E. C. Presco (2002), The 1990s in Japan: A Los Decade, Review of Economic Dynamics 5, Jimenez-Marin, S. and A. Sanchez (2003), An Evaluaion of he Life-Cycle Effecs of Minimum Pensions on Reiremen Behavior, UPF working paper 715. Kehoe, T. J. and E. C. Presco (eds., 2002), Grea Depressions of he 20h Cenury, Review of Economic Dynamics 5. Ljungqvis, L. and T. J. Sargen (1998), The European Unemploymen Dilemma, Journal of Poliical Economy 106, Ljungqvis, L. and T. J. Sargen (2002), The European Employmen Experience, CEPR 16

17 Discussion Papers Marimón, R. and F. Ziliboi (1998), Acual versus Virual Employmen in Europe: Is Spain Differen? European Economic Review 42, Mendoza, E. G., A. Razin and L. L. Tesar (1994), Effecive Tax Raes in Macroeconomics. Cross-counry Esimaes of Tax Raes on Facor Incomes and Consumpion, Journal of Moneary Economics 34, Nickell, S. (2003), Employmen and Taxes, CESifo Working Paper Series No Presco, E. C. (2002), Richard T. Ely Lecure: Prosperiy and Depressions, American Economic Review Papers and Proceedings, 92, Presco, E. C. (2004), Why Do Americans Work So Much More han Europeans? Federal Reserve Bank of Minneapolis Quarerly Review 28, Sánchez, V. (2003), Womens Employmen and Feriliy in Spain over he Las Tweny Years, CAERP Working Paper 03/16. 17

18 Table 1 Growh Accouning in Spain Decomposiion of Average Annual Changes in Real GDP per Working-Age Person (Percen) Daa Model base case Model consan axes Change in Y/N Due o TFP Due o K/Y Due o L/N Change in Y/N Due o TFP Due o K/Y Due o L/N Change in Y/N Due o TFP Due o K/Y Due o L/N Change in Y/N Due o TFP Due o K/Y Due o L/N

19 Table 2 Growh Accouning in France Decomposiion of Average Annual Changes in Real GDP per Working-Age Person (Percen) Daa Model base case Model consan axes Change in Y/N Due o TFP Due o K/Y Due o L/N

20 Table 3 Growh Accouning in Spain: Sensiiviy Analysis Decomposiion of Average Annual Changes in Real GDP per Working-Age Person (Percen) Daa Model base case Model consan TFP growh Model recalibraed parameers Model alernaive uiliy Model governmen consumpion Model myopic expecaions Change in Y/N Due o TFP Due o K/Y Due o L/N Change in Y/N Due o TFP Due o K/Y Due o L/N Change in Y/N Due o TFP Due o K/Y Due o L/N Change in Y/N Due o TFP Due o K/Y Due o L/N

21 Growh Accouning for Spain index (1960=100) A α ( / ) 1 K Y α α Y / N year L / N

22 Work in Spain = hours per worker employmen rae 60 hours per working age person year

23 Hours Worked per Working-Age Person Unied Saes hours per week France 16 Spain year

24 Growh Accouning for France index (1960=100) ( / ) 1 K Y α α 1 1 A α Y / N 100 L / N year

25 Marginal Tax Raes in Spain axes on labor percen axes on capial 0.10 axes on consumpion year

26 Derended Real GDP per Working-Age Person in Spain 130 index (1975=100) model wih consan axes daa 80 model wih axes year

27 Hours Worked per Working-Age Person in Spain hours per week model wih consan axes model wih axes 16 daa year

28 Capial/Oupu Raio in Spain daa raio 2.8 model wih axes 2.4 model wih consan axes year

29 Marginal Tax Raes in France 0.60 axes on labor percen axes on capial 0.10 axes on consumpion year

30 Real GDP per Working-Age Person in France model wih consan axes index (1970=100) daa 90 model wih axes year

31 Hours Worked per Working-Age Person in France model wih consan axes hours per week daa 16 model wih axes year

32 Capial/Oupu Raio in France 4.0 model wih axes 3.6 daa raio model wih consan axes year

33 Derended Real GDP per Working Age Person in Spain index (1975=100) model wih consan axes daa 70 model wih axes year

34 Hours Worked per Working Age Person in Spain model wih consan axes hours per week daa model wih axes year

35 Capial/Oupu Raio in Spain daa 2.8 raio model wih consan axes model wih axes year