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Inferring Inequality with Home Production

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  • Boerma, Job
  • Karabarbounis, Loukas

Abstract

We revisit the causes, welfare consequences, and policy implications of the dispersion in households' labor market outcomes using a model with uninsurable risk, incomplete asset markets, and home production. Accounting for home production amplifies welfare-based differences across households meaning that inequality is larger than we thought. Home production does not offset differences that originate in the market sector because productivity differences in the home sector are significant and the time input in home production does not covary with consumption expenditures and wages in the cross section of households. The optimal tax system should feature more progressivity taking into account home production.

Suggested Citation

  • Boerma, Job & Karabarbounis, Loukas, 2019. "Inferring Inequality with Home Production," CEPR Discussion Papers 13554, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13554
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    References listed on IDEAS

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    1. Marcet, Albert & Obiols-Homs, Francesc & Weil, Philippe, 2007. "Incomplete markets, labor supply and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2621-2635, November.
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    More about this item

    Keywords

    Consumption; Home Production; inequality; Labor Supply;

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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