Taxes, Natural Resource Endowment, and the Supply of Labor

Abstract

We use the work-leisure choice model to compute equilibrium weekly hours worked for a number of Arab countries and compare them to the G7 countries. We show that the labor supply curve is elastic in all Arab countries, and provide a new measure of labor productivity. This finding confirms previous research that workers respond to incentives, which has serious implications for tax and social security policies. We also provide some policy simulations pertinent to the effects of taxation on welfare and poverty.