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Luxuries, Necessities, and the Allocation of Time

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  • Lei Fang
  • Anne Hannusch
  • Pedro Silos

Abstract

Households enjoy utility fromactivities that require a combination of time and goods. We classify activities into two types: luxuries and necessities. Luxuries (necessities) are activities for which time and expenditure shares rise (decline) with income. We develop and estimate a model with nonhomothetic preferences and find that time and goods are substitutable in producing activities. Activities are also substitutable among themselves. Hence, wage and price changes cause large reallocations of time and expenditures across activities. This effect is quantitatively important for welfare inequality. Since 2003, the rise in the price of leisure luxuries has reduced welfare inequality while the rise in wage dispersion has increased it.

Suggested Citation

  • Lei Fang & Anne Hannusch & Pedro Silos, 2022. "Luxuries, Necessities, and the Allocation of Time," CRC TR 224 Discussion Paper Series crctr224_2022_291, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2022_291
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    More about this item

    Keywords

    time allocation; consumption expenditures; luxuries; necessities; activity production; inequality;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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