Inferring Inequality with Home Production

Job Boerma and Loukas Karabarbounis

No 746, Working Papers from Federal Reserve Bank of Minneapolis

Abstract: We revisit the causes, welfare consequences, and policy implications of the dispersion in households' labor market outcomes using a model with uninsurable risk, incomplete asset markets, and a home production technology. Accounting for home production amplifies welfare-based differences across households meaning that inequality is larger than we thought. Using the optimality condition that households allocate more consumption to their more productive sector, we infer that the dispersion in home productivity across households is roughly three times as large as the dispersion in their wages. There is little scope for home production to offset differences that originate in the market sector because productivity differences in the home sector are large and the time input in home production does not covary with consumption expenditures and wages in the cross section of households. We conclude that the optimal tax system should feature more progressivity taking into account home production.

Keywords: Home production; Labor supply; Consumption; Inequality (search for similar items in EconPapers)
JEL-codes: D10 D60 E21 J22 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2017-12-22
New Economics Papers: this item is included in nep-dge, nep-lma and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Inferring Inequality With Home Production (2021)
Working Paper: Inferring Inequality with Home Production (2019)
Working Paper: Inferring Inequality with Home Production (2018)
Working Paper: Inferring Inequality with Home Production (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedmwp:746

DOI: 10.21034/wp.746

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