Home production and the allocation of time and consumption over the life cycle
AbstractThis paper estimates a model of female time allocation and non-durable consumption in an intertemporal utility maximization framework. We are using rather extensive but relatively unexploited series of repeated cross sections from the Dutch B.O. consumer expenditure survey from Statistics Netherlands (1978- 2000). As male labor supply is known to respond rather inelastically to wage changes â€“perhaps due to restrictions on the labor marketâ€“ we condition on male labor supply in the analysis. We specify assumptions on domestic production technology that allows us to estimate labor supply elasticities that are consistent with non-separable preferences over consumption, leisure and a non-marketable domestically produced good, without the explicit use of time-use data. We find that when intertemporal re-allocation of resources is taken into account female labor supply elasticities increase about 50% in size relative to what we find in a static framework (1.1 to about 1.7). Furthermore, we identify parameters of intertemporal allocation on a log linearized Euler equation using a synthetic panel with a large T dimension. The intertemporal allocation parameter is of reasonable size, but is imprecisely estimated. Moreover, we find that current income is a significant predictor for consumption growth (conditional on demographics). This could be interpreted as evidence against the validity of our version of the life cycle model. We do however offer a number of different explanations for this finding.
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Bibliographic InfoPaper provided by Utrecht School of Economics in its series Working Papers with number 08-17.
Length: 34 pages
Date of creation: 2008
Date of revision:
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-30 (All new papers)
- NEP-DGE-2008-07-30 (Dynamic General Equilibrium)
- NEP-LAB-2008-07-30 (Labour Economics)
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- Rob Alessie & Joppe Ree, 2009. "Explaining The Hump In Life Cycle Consumption profiles," De Economist, Springer, vol. 157(1), pages 107-120, March.
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