Why are average hours worked per adult lower in rich countries than in poor countries? We
consider two natural explanations: income effects in preferences, in which leisure becomes
more valuable when income rises, and distortionary tax systems, which are more prevalent
in richer countries. To assess the importance of these two forces, we build a simple model
of labor supply by heterogeneous individuals and calibrate it to match international data on
labor income taxation, government transfers relative to GDP, and hours worked per adult.
The model predicts that income effects are the main driving force behind the decline of
average hours worked with GDP per capita. We reach a similar conclusion in an extended
model that matches cross-country patterns of labor supply along the extensive and
intensive margins and of the prevalence of subsistence self-employment.
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