Template-Type: ReDIF-Paper 1.0
Title: Luxuries, Necessities, and the Allocation of Time
Author-Name: Lei Fang
Author-Name: Anne Hannusch
Author-Email: hannusch@uni-mannheim.de
Author-Name: Pedro Silos
Classification-JEL: J22, E21, D11
Keywords: time allocation, consumption expenditures, luxuries, necessities, activity
production, inequality



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.


Note: 
Length: 86
Creation-Date: 2022-06
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp291
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2022_291