A two-sector model of endogenous growth with leisure externalities
AbstractThis paper considers the impact of leisure preference and leisure externalities on growth and labor supply in a Lucas  type model, as in Gómez , 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  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.
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Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2012-045.
Date of creation: 2012
Date of revision:
Other versions of this item:
- Azariadis, Costas & Chen, Been-Lon & Lu, Chia-Hui & Wang, Yin-Chi, 2013. "A two-sector model of endogenous growth with leisure externalities," Journal of Economic Theory, Elsevier, vol. 148(2), pages 843-857.
- Costas Azariadis & Been-Lon Chen & Chia-Hui Lu & Yin-Chi Wang, 2012. "A Two-sector Model of Endogenous Growth with Leisure Externalities," IEAS Working Paper : academic research 12-A014, Institute of Economics, Academia Sinica, Taipei, Taiwan.
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-11 (All new papers)
- NEP-DGE-2012-11-11 (Dynamic General Equilibrium)
- NEP-FDG-2012-11-11 (Financial Development & Growth)
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