Global Perspectives on Fiscal Policy and Labor Income-Leisure Choices: Theoretical and Practical Insights

Abstract

In macroeconomic literature, fiscal policy is considered a powerful tool to achieve sustainable development, full employment, and social well-being in developed and developing societies. For this, public authority uses expansionary and contractionary tax policies to achieve stable growth and employment environment for the stable labor market. This study theoretically and empirically investigates the problem of inference on income-leisure labor preference. Also, it considers the impact of tax and expenditure structure on labor choices regarding working hours under the assumption of neoclassical theory. We use quantile regression analysis to investigate the data set for worldwide, high, and low-income countries from 2000 to 2022, for the macro-level analysis based on the empirical investigation of 123 countries cross-section panel. The outcomes show that when the fiscal authorities impose a regressive form of taxes, it may hurt the labor wages and distribution of income-leisure preferences or the welfare of labor. Similarly, non-labor income hurts labor utility through a large volume of non-development expenditure. However, when the progressive form of taxes is imposed, it may improve the labor utility. At the same time, on the other side, when fiscal authority disburses the development expenditure, it may support the non-labor income through the provision of public goods and services. For practice, the empirical results of quantile regression show that government expenditure has a positive while tax hurts labor supply. Fiscal policy in low-income countries has provided an alternative outcome