A two-sector model of endogenous growth with leisure externalities

Costas Azariadis, Been-Lon Chen, Chia-Hui Lu and Yin-Chi Wang

Journal of Economic Theory, 2013, vol. 148, issue 2, 843-857

Abstract: This paper considers the impact of leisure preference and leisure externalities on growth and labor supply in a Lucas (1988) [12] type model, as in Gómez (2008) [7], with a separable non-homothetic utility and the assumption that physical and human capital are both necessary inputs in both the goods and the education sectors. In spite of the non-concavities due to the leisure externality, the balanced growth path is always unique, which guarantees global stability for comparative-static exercises. We find that small differences in preferences toward leisure or in leisure externalities can generate substantial differences in hours worked and growth, which may play a significant role in explaining differences in growth paths between the US and Europe, in addition to the mechanisms uncovered in Prescott (2004) [15] relying on differing marginal tax rates on labor income. Our model indicates, however, that a higher preference for leisure or leisure externality implies less growth but also less education attainment, which seems counterfactual.

Keywords: Leisure externalities; Two-sector model; Labor supply; Economic growth (search for similar items in EconPapers)
JEL-codes: E24 O41 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (20)

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Working Paper: A two-sector model of endogenous growth with leisure externalities (2012)
Working Paper: A Two-sector Model of Endogenous Growth with Leisure Externalities (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:148:y:2013:i:2:p:843-857

DOI: 10.1016/j.jet.2012.08.005

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