Taxes and culture of leisure: Impact on labor supply in Europe

This paper uses micro data from the European Social Survey to investigate the impact of culture of leisure and taxes on labor force participation and hours worked of second-generation immigrants who reside in 26 European countries. These individuals are born in Europe, and they have been exposed to institutional, legal and labor market structures of their countries, including the tax rates. Their fathers are first-generation immigrants who migrated from 47 different countries. I construct measures of “taste for leisure” in the country of origin of each immigrant father. I employ average and marginal tax rates for each country of residence, and control for individual characteristics, in addition to a large set of attributes of the country of residence and country of origin. I demonstrate that systematic selection of first-generation immigrants (the fathers of the individuals analyzed) to countries of destination based on the tax rates is unlikely. The results show that for women, both taxes and culture of leisure impact labor force participation and hours worked. For men, taxes influence labor supply both at the intensive and the extensive margins, but culture of leisure has no impact. The results are insensitive to the omission of immigrants from Muslim countries.