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Intertemporal substitution for consumption and leisure: empirical evidence for Spain

Antonio Cutanda and Juan A. Sanchis Llopis ()
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Antonio Cutanda: Department of Economic Analysis, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).

No 1909, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: In this paper we test 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 first order conditions separately and jointly using a Spanish pseudo-panel data set built by combining the Family Expenditure Survey and the Labour Survey for Spain over the period 1987-1997. Our results confirm previous empirical evidence as regards the elasticity of intertemporal substitution for consumption, that we estimate around 0.4/0.5, and provide an estimate for the leisure intertemporal elasticity around 0.2/0.3. Finally, we provide further evidence controlling for human capital. This allows checking that the model ignoring human capital produces biased estimates for the elasticity of intertemporal substitution for leisure.

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: 2019-10
New Economics Papers: this item is included in nep-eur, nep-lma, nep-mac and nep-upt
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