More considerations on Europe

In previous post we have presented that welfare states, financed by high taxes, are to be blamed of the long term problems of Europe. In this excellent lecture, Prescott finds that the high differences in working hours in the United States and the large economies of Europe, 20-30 percent higher in the former, is explained by the higher marginal tax rates of Europe. Highly elastic labor supplies, as found by the author, may help or damage European economies: if taxes are lowered it is expected higher working hours and productivity, which may help the fiscal position of countries and even the social security schemes; but if taxes are rised we can expect lower working hours and even a lower fiscal base…unless the benefits of the workers, such as minimum age of retirement, vacations and leave periods, are adjusted.