Discussion of “ Do taxes explain European employment ?

There are two ways to read the paper by Ljungqvist and Sargent (and these two ways are reflected in the two parts of the title). First, as a response to Prescott’s argument about labor supply and taxes. Second, as an exploration of the implications of heterogeneity for aggregate labor supply. While the first clearly provided the motivation for the paper, I believe the second is likely to prove the more important contribution.