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Inferring Inequality with Home Production

Author

Listed:
  • Job Boerma

    (University of Minnesota)

  • Loukas Karabarbounis

    (University of Minnesota)

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 a home production technology. Accounting for home production amplies welfare-based dierences across households meaning that inequality is larger than we thought. Using the optimality condition that households allocate more consumption to their more productive sector, we infer that the dispersion in home productivity across households is roughly three times as large as the dispersion in their wages. There is little scope for home production to oset dierences that originate in the market sector because productivity dierences in the home sector are large and the time input in home production does not covary with consumption expenditures and wages in the cross section of households. We conclude that the optimal tax system should feature more progressivity taking into account home production.

Suggested Citation

  • Job Boerma & Loukas Karabarbounis, 2018. "Inferring Inequality with Home Production," 2018 Meeting Papers 157, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:157
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    1. Inferring Inequality with Home Production
      by Christian Zimmermann in NEP-DGE blog on 2018-01-11 22:56:22

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    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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