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Intertemporal substitution for consumption and leisure: empirical evidence for Spain

Author

Listed:
  • Antonio Cutanda

    (Department of Economic Analysis, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).)

  • Juan A. Sanchis Llopis

    (Department of Economic Structure, University of Valencia, Avda. dels Tarongers s/n, 46022 Valencia (Spain).)

Abstract

In this paper we test the three first-order conditions of an intertemporal optimization model for a representative individual who chooses simultaneously for her level of consumption and leisure, assuming a separable utility function. We estimate these first order conditions separately and jointly using a Spanish pseudo-panel data set built by combining the Family Expenditure Survey and the Labour Survey for Spain over the period 1987-1997. Our results confirm previous empirical evidence as regards the elasticity of intertemporal substitution for consumption, that we estimate around 0.4/0.5, and provide an estimate for the leisure intertemporal elasticity around 0.2/0.3. Finally, we provide further evidence controlling for human capital. This allows checking that the model ignoring human capital produces biased estimates for the elasticity of intertemporal substitution for leisure.

Suggested Citation

  • Antonio Cutanda & Juan A. Sanchis Llopis, 2019. "Intertemporal substitution for consumption and leisure: empirical evidence for Spain," Working Papers 1909, Department of Applied Economics II, Universidad de Valencia.
  • Handle: RePEc:eec:wpaper:1909
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    References listed on IDEAS

    as
    1. Zabel, Jeffrey E., 1997. "Estimating wage elasticities for life-cycle models of labour supply behavior," Labour Economics, Elsevier, vol. 4(3), pages 223-244, September.
    2. Zeldes, Stephen P, 1989. "Consumption and Liquidity Constraints: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 97(2), pages 305-346, April.
    3. James P. Ziliak & Thomas J. Kniesner, 2005. "The Effect of Income Taxation on Consumption and Labor Supply," Journal of Labor Economics, University of Chicago Press, vol. 23(4), pages 769-796, October.
    4. Johanna Wallenius, 2011. "Human Capital Accumulation and the Intertemporal Elasticity of Substitution of Labor: How Large is the Bias?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 577-591, October.
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    Cited by:

    1. Juan A. Sanchis-llopis & Antonio Cutanda, 2020. "The Spanish cyclicality of the user cost of labour," Economics Bulletin, AccessEcon, vol. 40(3), pages 1893-1899.
    2. Menoncin, Francesco & Regis, Luca, 2020. "Optimal life-cycle labour supply, consumption, and investment: The role of longevity-linked assets," Journal of Banking & Finance, Elsevier, vol. 120(C).

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    More about this item

    Keywords

    Euler equation; Instrumental variables; Intertemporal Substitution; Panel data;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C36 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Instrumental Variables (IV) Estimation
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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