This paper uses a simple model of labor supply extended to allow for home production to understand the extent to which differences in taxes can account for differences in time allocations between the US and Europe. Once home production is included, the elasticity of substitution between consumption and leisure is almost irrelevant in determining the response of market hours to higher taxes. But to account for observed differences in leisure and time spent in home production, one requires a large elasticity of substitution between consumption and leisure, and a small elasticity of substituion betwen time and goods in home production.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
14400.
Length: Date of creation: Oct 2008 Date of revision: Handle: RePEc:nbr:nberwo:14400
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Find related papers by JEL classification: E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
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