that reductions in tax distortions have bene-
household repairs and maintenance, etc). There
ficial effects on labour-market outcomes and
are not many cross-country studies of house-
general economic performance. In fact, low-
hold work, so comparing America and the
ering euro area tax wedges to levels prevailing
Nordic nations is rather difficult. But a Swedish
in the United States is found to result in a rise
study found that 90 percent of the gap between
in hours worked and output by more than 10
the hours worked by Swedes and Americans dis-
percent in the long run."23
appeared once household production was
added to the equation. Inferences can also be
An OECD study also threw cold water on
drawn by comparing the United States and
the assertion that Europeans have freely cho-
Germany. A German study explains: "On aver-
sen to work less:
age Americans and Germans spend roughly the
same hours working, but Americans spend
The leisure time enjoyed by individuals
more time in market work while Germans
is obviously important for any evalua-
spend more hours in household production.
tion of well-being, and workers' choices
Americans do not work longer hours than
on how to allocate their time have a
Germans overall, but they allocate a larger share
direct bearing on cross-country com-
of working time to gainful employment and
parisons of economic aggregates. . . . As
invest less in self-provision."21 The study
European workers worked more than
their US counterparts up to the late
explains that tax policy is a key factor.
1960s, it is difficult to invoke long-
Moreover, even if people in Nordic nations
standing cultural differences to explain
truly have more leisure time, it is not necessar-
current labour-utilisation patterns. A
ily what they prefer. As the president of the
different explanation focuses on the
European Central Bank recently remarked:
role of policies and institutions, which
may both depress and boost working
Lower participation rates are not neces-
hours. . . . [R]elatively low hours worked
sarily solely associated with personal
per person in Europe can be fully
preferences, but are also triggered by
explained by policy distortions arising
the legal and regulatory environment,
from high marginal taxes on labour.24
tax systems and social institutions.
Benefit systems that are too generous
discourage job search, early retirement
Shifting to another measure of prosperity,
schemes encourage early withdrawal
cross-country wealth data is relatively scarce
from the labour market--employment
and presumably less precise than income data,
rates for older workers aged 5564
but the figures that are available show that the
stood at just 40.2% in the euro area in
United States has a large advantage in per capi-
ta wealth.25 Indeed, as shown in Figure 8,
2005 and, according to the OECD, at
around 60% in the U.S.--and marginal
Americans have twice the household wealth of
tax rates that are too high discourage
Swedes, Finns, and Norwegians (no data avail-
labour market entry and have a down-
able for Iceland and Denmark). Americans also
ward effect on average hours worked.22
own more consumer products, particularly
durable equipment such as automobiles and
household appliances.26 Americans also enjoy
A study from the Bank confirms this
analysis. It explains that "while the overall tax
more housing. Indeed, poor people in the
Americans
wedge in the euro area currently amounts to
United States have as much housing space as
have twice the
the average European.27 As stated above, none
roughly 64 percent of the earnings of an aver-
household wealth
age production worker, that of the United
of these comparisons suggest that Nordic
States is limited to about 37 percent." It then
nations are economic failures. Indeed, they are
of Swedes, Finns,
reports: "Our analysis using the [New Area-
among the world's wealthiest economies, but
and Norwegians.
Wide Model] confirms the widely-held view
high taxes and excessive government spending
9