Non‐separable utilities and aggregate instability

This paper studies an infinite‐horizon two‐sector growth model with sector‐specific externalities and preferences that are non‐separable between consumption and leisure. We find two main results. First, a larger income effect on the labor supply increases the possibility of macroeconomic instability...

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Bibliographic Details
Published in:International journal of economic theory 2020-06, Vol.16 (2), p.222-237
Main Authors: Chen, Been‐Lon, Lee, Shun‐Fa, Raurich, Xavier
Format: Article
Language:English
Subjects:
Externality
Growth models
income effect
indeterminacy
Labor supply
labor supply elasticity
Leisure
non‐separable preferences
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Summary:This paper studies an infinite‐horizon two‐sector growth model with sector‐specific externalities and preferences that are non‐separable between consumption and leisure. We find two main results. First, a larger income effect on the labor supply increases the possibility of macroeconomic instability. Second, a larger elasticity of the labor supply may increase or decrease the possibility of aggregate instability, depending on the intensity of the income effect.
ISSN:1742-7355
1742-7363
DOI:10.1111/ijet.12188