Luxuries, Necessities, and the Allocation of Time

Lei Fang, Anne Hannusch (hannusch@uni-mannheim.de) and Pedro Silos

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Households enjoy utility fromactivities that require a combination of time and goods. We classify activities into two types: luxuries and necessities. Luxuries (necessities) are activities for which time and expenditure shares rise (decline) with income. We develop and estimate a model with nonhomothetic preferences and find that time and goods are substitutable in producing activities. Activities are also substitutable among themselves. Hence, wage and price changes cause large reallocations of time and expenditures across activities. This effect is quantitatively important for welfare inequality. Since 2003, the rise in the price of leisure luxuries has reduced welfare inequality while the rise in wage dispersion has increased it.

Keywords: time allocation; consumption expenditures; luxuries; necessities; activity production; inequality (search for similar items in EconPapers)
JEL-codes: D11 E21 J22 (search for similar items in EconPapers)
Pages: 86
Date: 2022-06
New Economics Papers: this item is included in nep-dem and nep-mac
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Related works:
Working Paper: Luxuries, Necessities, and the Allocation of Time (2021)
Working Paper: Luxuries, Necessities, and the Allocation of Time (2021)
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