The causal effect of holidays on growth

Abstract

Public holidays are regulations that directly reduce workers’ labor supply, shutting down part of the economy. These popular policies have valuable benefits, but also have opportunity costs from foregone market economic activity and tax revenues. A pervasive challenge to measure these costs is that a country’s holidays are endogenous to income and preferences. Also, public holidays increase demand for subcategories of GDP, with an ambiguous magnitude on the whole economy. This paper presents a global panel of national holidays (2000-2019) for over 200 countries. Beyond long-run trends, it introduces a novel ”high frequency” identification coming from public holidays falling on a weekend. For many countries that do not replace these ”lost holidays”, this mechanism transitory increases working days for a year, in a way that is arguably orthogonal to other determinants of growth. We find an hours-worked elasticity of GDP around 0.25-0.50; so an extra holiday would be 50-75% cheaper than what a proportional effect may predict. As expected, the effect is stronger in activities that are more likely to be interrupted by these holidays, like industry and manufacturing. In contrast, we find no effect on broad activities that are likely to continue (mining, agriculture). It is reassuring that these ”high frequency” holidays are also related to fewer work-related accidents and to more short-run happiness. We also find that tax revenues and expenditures have some exposure to holidays.