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Leisure Externalities: Implications for Growth and Welfare

  • Mihaela Pintea

    ()

    (Department of Economics, Florida International University)

This paper develops a neoclassical growth model with leisure externalities. Ignoring positive (negative) leisure externalities leads to equilibrium consumption, labor and capital that are too high (low) and leisure that is too low (high). The government should tax (subsidize) labor income according to whether the leisure externality is positive or negative. The level of this tax (subsidy) depends on the elasticity of individual and average leisure and the consumption tax. Equilibrium dynamics are characterized, and two shocks to the economy are analyzed – an increase in the growth rate of labor productivity, and an increase in the tax on labor income – by simulating a calibrated economy. Adjustment processes of key variables in a competitive and centrally planned economy with and without leisure externalities are also compared.

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File URL: http://casgroup.fiu.edu/pages/docs/2244/1275230127_06-09.pdf
File Function: First version, 2006
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Paper provided by Florida International University, Department of Economics in its series Working Papers with number 0609.

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Length: 33 pages
Date of creation: Jul 2006
Date of revision:
Handle: RePEc:fiu:wpaper:0609
Contact details of provider: Postal: Miami, FL 33199
Phone: (305) 348-2316
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Web page: http://casgroup.fiu.edu/Economics/
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  1. repec:ese:iserwp:2005-09 is not listed on IDEAS
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