NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Inferring Inequality with Home Production

Job Boerma, Loukas Karabarbounis

NBER Working Paper No. 24166
Issued in December 2017, Revised in February 2019
NBER Program(s):Economic Fluctuations and Growth Program, Labor Studies Program, Public Economics Program

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.

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Document Object Identifier (DOI): 10.3386/w24166

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