Thursday, September 30, 2010

Taxes, Natural Resource Endowment and the Supply of Labor in Arab Countries

In general, the lack of data represents a challenge to evidence-based policy because it adversely affects research.  Generally, data are scarce in the Arab countries, but the labor market is the worst.  In my research (with Belkacem Laabas) we make a little contribution in this area.  We calibrate an economic model (The leisure-work choice) to generate data on hours-worked in a number of Arab countries. The data are then used to answer questions about labor productivity (measured by GDP per hour-worked) and welfare (measured by Lifetime Consumption Equivalent) policies.  

We found that - relative to OECD - the non oil-producing Arab countries work long hours, but their productivity levels low, thus they are poorer.  Oil-producing countries work much less.   So the relatively less fortunate Arab countries work hard while the oil-rich countries are hardly working, especially when oil revenues are high.  It turned out that the oil wealth endowment acts exactly like taxes, it increases rent seeking activities and discourages work.  We also demonstrate that reducing the tax rate can significantly reduce poverty by increasing the supply of labor.  

We encourage Arab economists and PhD students to engage in research, where economic theory is used to generate the data required for economic analysis. The data can help to inform policy.  This strategy is a useful research method for the time being, at least until Arab statistical departments begin to produce data in timely fashion.   

>> The English version of the paper can be found here.
>> The Arabic version of the paper can be found here.