Leisure Externalities: Implications for Growth and Welfare

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Leisure Externalities: Implications for Growth and Welfare

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Mihaela Pintea () (Department of Economics, Florida International University)

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Mihaela Iulia Pintea

Abstract

This paper develops a neoclassical growth model with leisure externalities. Ignoring positive (negative) leisure externalities leads to equilibrium consumption, labor and capital that are too high (low) and leisure that is too low (high). The government should tax (subsidize) labor income according to whether the leisure externality is positive or negative. The level of this tax (subsidy) depends on the elasticity of individual and average leisure and the consumption tax. Equilibrium dynamics are characterized, and two shocks to the economy are analyzed – an increase in the growth rate of labor productivity, and an increase in the tax on labor income – by simulating a calibrated economy. Adjustment processes of key variables in a competitive and centrally planned economy with and without leisure externalities are also compared.

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Paper provided by Florida International University, Department of Economics in its series Working Papers with number 0609.

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Length: 33 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:fiu:wpaper:0609

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Find related papers by JEL classification:
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-07-21 (All new papers)
NEP-DEV-2006-07-21 (Development)
NEP-DGE-2006-07-21 (Dynamic General Equilibrium)
NEP-MAC-2006-07-21 (Macroeconomics)

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