This paper investigates whether leisure time definitions matter in the estimation of the intertemporal elasticity of substitution of consumption (IES) by using a utility specification that allows interaction between consumption and leisure time. We find that the IES estimated using a narrowly defined leisure measure that excludes quasi-leisure activities is larger than that estimated using nonmarket time. The discrepancy is largely driven by the substitution of consumption and several leisure components over the lifecycle. This finding is robust in alternative specifications and holds well for subsamples of higher socioeconomic status. Our results demonstrate the inseperable nature of consumption and time allocation.
0000-0001-8611-1577 (Juan Du), 0000-0001-9916-6008 (Takeshi Yagihashi)
Original Publication Citation
Du, J., & Yagihashi, T. (2017). Intertemporal Elasticity of Substitution with Leisure Margin. Old Dominion University. Department of Economics. Retrieved from https://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnx0YWtlc2hpeWFnaWhhc2hpfGd4Ojc2NTIxNzdkYmRhNzlhM2M
Du, Juan and Yagihashi, Takeshi, "Intertemporal Elasticity of Substitution with Leisure Margin" (2017). Economics Faculty Publications. 21.
Note: This is an unpublished working paper of Juan Du and Takeshi Yagihashi.