Leisure Externalities and Optimal Fiscal Policy
Date Issued
2010
Date
2010
Author(s)
Chung, Yueh-Hsuan
Abstract
Consumption and leisure are both important components of individual utility. In the habit formation literature, both internal and external consumption habits have been widely investigated. However, when it comes to leisure externalities, little works have been done despite the fact that it is economically plausible. This paper aims to fill in this gap. A stylized simple model is constructed to allow for leisure externalities, and its policy implications are studied. A richer model with both leisure externalities and intertemporal substitution (or complementarity) is also studied, and the interaction between such intertemporal preference and externalities is found to be crucial in the determinant of the cyclical property of optimal tax.
Subjects
Leisure externalities
habit formation
optimal fiscal policy
intertemporal substitution
leisure coordination
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