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It is an emperical fact that on average americans work longer hours than europeans. Discuss (in...

It is an emperical fact that on average americans work longer hours than europeans. Discuss (in the context of our model of labor-leisure) how higher income taxes in Europe may be an explanation.

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Answer #1

Europeans work less than Americans on an average basis. One of the explanations of the Europeans working for less number of hours is higher income taxes in Europe. Increase in the income taxes in Europe reduce the disposable income of workers which reduces their consumption level. This acts as an disincentive for workers and they reduce their working hours further as substitution effect or reduced wage outweighs the income effect. Reduced wage reduces the opportunity cost of leisure and thus increases the number of leisure hours.

Thus, higher income tax rate in Europe could ba an explanation of the fact that Europeans work for less number of hours as compared to Americans.

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