The Impact of Labor Taxes on Labor Supply: An International Perspective
Rogerson compares fifty years of time series data from the United States and fourteen other OECD countries. He finds that a 10 percentage point increase in the tax rate on labor leads to a 10 to 15 percent decrease in hours of work. Even a 5 percent decrease in hours worked would mean a decline in labor output equating to a serious recession. While recessions are temporary, permanent changes in government spending patterns have long-lasting repercussions.