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Housework and Fiscal Expansions

Stefano Gnocchi (), Daniela Hauser () and Evi Pappa ()

Staff Working Papers from Bank of Canada

Abstract: We build an otherwise-standard business cycle model with housework, calibrated consistently with data on time use, in order to discipline consumption-hours complementarity and relate its strength to the size of fiscal multipliers. We show that if substitutability between home and market goods is calibrated on the empirically relevant range, consumption-hours complementarity is large and the model generates fiscal multipliers that agree with the evidence. Hence, our analysis supports the relevance of consumption-hours complementarity for fiscal multipliers. However, we also find that explicitly modeling the home sector is more appealing than restricting to the consumption-leisure margin and/or to the preferences proposed by Greenwood, Hercowitz and Huffman (1988). A housework model can imply substantial complementarity, without low wealth effects contradicting the microeconomic evidence.

Keywords: Fiscal policy; Business fluctuations and cycles (search for similar items in EconPapers)
JEL-codes: E24 E32 E52 E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2014
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Journal Article: Housework and fiscal expansions (2016) Downloads
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