STEG Working Paper Series Research Theme 2: Labour, Home Production, and Structural Transformation at the Level of the Household

A Theory of Structural Change, Home Production and Leisure

WP071 CossuMoroRodriguezRomanTunisATheoryOfStructuralChangAndHomeProduction.pdf

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A Theory of Structural Change, Home Production and Leisure

Why do agents consume more services relative to goods as income grows? We present a theory of structural change assuming that a representative household satisfies final needs by means of two home-production functions in time and either goods or services from the market. When calibrating the model to U.S. data, roughly half of structural change is accounted for by technological change allowing services to display a larger time saving than goods in satisfying final needs. Also, even if preferences are homothetic, the calibrated model generates endogenous income effects, which account for the remaining structural change generated by the model.

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