Consumption and Hours in the United States and Europe

Lei Fang and Fang Yang

No 2216, Working Papers from Federal Reserve Bank of Dallas

Abstract: We document large differences between the United States and Europe in allocations of expenditures and time for both market and home activities. Using a life-cycle model with home production and endogenous retirement, we find that the cross-country differences in consumption tax, social security system, income tax and TFP together can account for 68-95 percent of the cross-country variations and more than half of the average differences between Europe and the United States in aggregate hours and expenditures. These factors can also account well for the cross-country differences in allocations by age and generate substantially lower market hours in Europe for the age group of sixty and above as in the data. All the factors, except income tax, are quantitatively important for determining cross-country differences in expenditure allocations. While the differences in social security system and income tax are crucial in explaining the difference in market hours around retirement ages, TFP and consumption tax are more important for the difference in market hours for prime ages.

Keywords: Consumption expenditure; home production; labor supply; fiscal policy (search for similar items in EconPapers)
JEL-codes: E21 E62 H31 J22 O57 (search for similar items in EconPapers)
Pages: 59
Date: 2022-09-08
New Economics Papers: this item is included in nep-dge, nep-eec, nep-lma and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddwp:94739

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DOI: 10.24149/wp2216

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