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Taxes, Transfers and Time Use: Fiscal Policy in a Model of Household Production

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  • Kelly Ragan

    (Stockholm School of Economics)

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    Abstract

    I develop a household production model where the public provision of home goods plays a prominent role. This model accurately fits time use in the market and home sectors for a broad group of O.E.C.D. countries in terms of both tax policy and public expenditures. Taxes alone cannot explain market and home sector labor supply patterns in the O.E.C.D. Accounting for the structure of public expenditures, in particular the public provision of home goods, is important for model predictions and welfare analysis. The model and data I present show that adopting fiscal policies similar to the U.S. would lead to welfare gains equivalent to ten percent of market and home goods consumption in some European countries. I compute optimal policy rules under alternative assumptions regarding how public revenues are generated. The gains to optimal home sector fiscal policy design are of similar magnitudes to the welfare gains associated adopting a tax system similar to the U.S. for some high tax/high public expenditure countries.

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    File URL: http://www.economicdynamics.org/meetpapers/2007/paper_681.pdf
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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2007 Meeting Papers with number 681.

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    Date of creation: 2007
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    Handle: RePEc:red:sed007:681

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    1. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    2. Mark Aguiar & Erik Hurst, 2007. "Life-Cycle Prices and Production," American Economic Review, American Economic Association, vol. 97(5), pages 1533-1559, December.
    3. Ljungqvist, Lars & Sargent, Thomas J., 1997. "The European Unemployment Dilemma," Working Paper Series in Economics and Finance 178, Stockholm School of Economics.
    4. Casey B. Mulligan & Justin G. Marion, 2001. "Average Marginal Tax Rates Revisited: A Comment," Working Papers 0104, Harris School of Public Policy Studies, University of Chicago.
    5. Hallberg, Daniel & Klevmarken, Anders, 2001. "Time for Children, a Study of Parents’ Time Allocation," Working Paper Series 2001:21, Uppsala University, Department of Economics.
    6. Edward C. Prescott, 2003. "Why do Americans work so much more than Europeans?," Staff Report 321, Federal Reserve Bank of Minneapolis.
    7. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
    8. Martin Browning & Lars Peter Hansen & James J. Heckman, 1999. "Micro Data and General Equilibrium Models," Discussion Papers 99-10, University of Copenhagen. Department of Economics.
    9. Robert J. Barro & Chaipat Sahasakul, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," NBER Working Papers 1060, National Bureau of Economic Research, Inc.
    10. Douglas Gollin, 2001. "Getting Income Shares Right," Department of Economics Working Papers 2001-11, Department of Economics, Williams College.
    11. Robert J. Barro & Chaipat Sahasakul, 1983. "Measuring the Average Marginal Tax Rates from Social Security and the Individual Income Tax," University of Chicago - George G. Stigler Center for Study of Economy and State 29, Chicago - Center for Study of Economy and State.
    12. Klevmarken, N. Anders & Stafford, Frank P., 1997. "Time Diary Measures of Investment in Young Children," Working Paper Series 1997:8, Uppsala University, Department of Economics.
    13. Lucas, Robert E, Jr, 1990. "Supply-Side Economics: An Analytical Review," Oxford Economic Papers, Oxford University Press, vol. 42(2), pages 293-316, April.
    14. David Carey & Josette Rabesona, 2002. "Tax Ratios on Labour and Capital Income and on Consumption," OECD Economic Studies, OECD Publishing, vol. 2002(2), pages 129-174.
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    Cited by:
    1. Lei Fang & Guozhong Zhu, 2012. "Home production technology and time allocation: empirics, theory, and implications," Working Paper 2012-19, Federal Reserve Bank of Atlanta.

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