Statistical Database and the EU-KLEMS dataset<sup>17</sup> . Our index of value added is constructed from the OECD dataset as the weighted growth of household ...nal consumption, gross capital formation and government consumption (where appropriate) at constant national prices, using as weights their respective shares of value added. According to our theory, these shares should be kept constant at their steady state level, but in practice we use shares averaged across the twenty years in our sample.

In constructing the growth rate of the "modi...ed" productivity residual, we subtract from the log-changes in value added, the log changes in the capital and labor stocks used to produce it, weighted by their average respective shares out of total compensation. Data on aggregate production inputs are provided by EU-KLEMS. Log-changes in capital are constructed using the estimated capital stock constructed by applying the perpetual inventory method on investment data. In our benchmark speci...cation, log-changes in the labor stock are approximated by log-changes in the amount of hours worked by persons engaged. Alternatively, we use a labor service index which is computed as a translog function of types of workers engaged (classi...ed by skill, gender, age and sex), where weights are given by the average share of each type of worker in the value of total labor compensation. We assume that economic pro...ts are zero in the steady state so that we can recover the gross (tax unadjusted) share of capital as one minus the labor share.

In order to compare welfare across countries, we combine data coming from the Penn World Tables and the EU-KLEMS dataset. More speci...cally, our basic measure of value added is constructed from the Penn World Tables as the weighted average of PPP converted log-private consumption, log-gross investment and log-government consumption, using as weights their respective shares of value added in the reference country; as in the within case, we use shares that are averaged across the twenty years in our sample.

To construct the modi...ed log-productivity residual in each country, we subtract from this measure of value added the amount of capital and the amount of labor used to produce it, weighted by their respective share of compensation in the reference country, also in this case kept constant at their average value. The stock of capital in the economy is constructed using the perpetual inventory method on the PPP converted investment time series from the Penn World Tables. The stock of labor is computed in two di¤erent ways using the EU-KLEMS dataset. In our benchmark speci...cation, the amount of labor services used in the economy is approximated by the hours worked. In the alternative speci...cation, it is computed by aggregating over di¤erent types of persons engaged using a translog function, where weights are given by the shares of compensation to each type of labor out of total compensation to labor and are kept constant at their average value in the reference country.

Finally, to correct our welfare calculations for the presence of distortionary taxation, we use data on average tax rates on capital and labor provided by Boscá et al. (2005). The tax rates are computed by combining realized tax revenues, from the OECD Revenue Statistics, with estimates of the associated tax bases derived from the OECD National Accounts. These data update the tax

> 17 The EU-KLEMS data are extensively documented by O’Mahony and Timmer (2009).

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