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Joint estimation of intertemporal labor and consumption decisions: evidence from Spanish households headed by working men

Antonio Cutanda and Juan A. Sanchis-Llopis ()
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Antonio Cutanda: Universidad de Valencia
Juan A. Sanchis-Llopis: Universidad de Valencia and ERICES

Eurasian Economic Review, 2021, vol. 11, issue 4, No 2, 629 pages

Abstract: Abstract The aim of this paper is testing the three first-order conditions of an intertemporal optimization model for a representative individual who chooses simultaneously for her level of consumption and leisure, assuming a separable utility function. We estimate these conditions jointly in a system of equations, using a Spanish pseudo-panel data set built by combining the Family Expenditure Survey and the Labor Survey over the period 1987–1997. Our results are in line with previous empirical evidence as regards the elasticity of intertemporal substitution for consumption, as our estimate for this elasticity is between 0.4 and 0.5. Further, we also obtain the first estimate for Spain of the intertemporal elasticity of leisure. This value is above 0.3, and is comparable to other estimates found for other economies.

Keywords: Euler equation; Instrumental variables; Intertemporal substitution; Panel data (search for similar items in EconPapers)
JEL-codes: C33 C36 E21 E24 J22 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s40822-021-00176-3

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