Hours worked vary widely across countries and over time. In this paper, we investigate the role played by taxation in explaining these differences for EU New Member States. By extending a standard growth model with novel data on consumption and labor taxes, we assess the evolution of trends in hours worked over the 1995-2017 period. We find that the inclusion of tax rates in the model significantly improves the tracking of hours. We also estimate the elasticity of hours (and its different margins) to quantify the deadweight loss introduced by consumption and labor taxes. We find that these taxes explain a large share of labor supply differences across EU New Member States and that the potential gains from policy actions are noteworthy.
This Selected Issues paper examines the reasons behind Lithuania’s low tax-GDP ratio relative to the European Union (EU). At end-2015, Lithuania had nearly the lowest tax-GDP ratio in the EU, along with Bulgaria and Romania. The tax revenue shortfall relative to the EU is for the most part attributable to weak tax administration and tax policy, with the structure of the economy playing a secondary role. The second largest contribution to the tax revenue shortfall relative to the EU comes from social security contributions. The shortfall is driven primarily by the structure of the economy, and to a smaller extent by tax administration.
This 2014 Cluster Consultation report examines common themes and challenges facing the three Baltic countries—Estonia, Latvia, and Lithuania. It identifies common features and common challenges, and discusses policies—both national and joint—that could help to address these challenges. The Baltic economies have performed well during the last two decades. The global financial crisis exposed vulnerabilities that had built up in the Baltics, but the postcrisis recovery revealed inherent strengths as well. This report highlights that national policies are necessary to address all of the challenges, but collaboration is also important in some areas.