Productivity, Taxes, and Hours Worked in Spain: 1970-2015

Juan Carlos Conesa, Stony Brook University

Timothy J. Kehoe, Consultant

July 2017 | Federal Reserve Bank of Minneapolis Staff Report 550

In the early 1970s, hours worked per working-age person in Spain were higher than in the United States. Starting in 1975, however, hours worked in Spain fell by 40 percent. We find that 80 percent of the decline in hours worked can be accounted for by the evolution of taxes in an otherwise standard neoclassical growth model. Although taxes play a crucial role, we cannot argue that taxes drive all of the movements in hours worked. In particular, the model underpredicts the large decrease in hours in 1975–1986 and the large increase in hours in 1994–2007. The lack of productivity growth in Spain during 1994–2015 has little impact on the model’s prediction for hours worked.

DOI: https://doi.org/10.21034/sr.550