Household Time Use, Inequality and Taxation

Abstract

This paper explores the implications for inequality measurement, and its applications to problems of tax/transfer policy, of the empirical patterns of household time use, in particular the existence of household production and child care. A basic dilemma underlying the vast literature on the measurement of inequality is that, conceptually, we are concerned about inequality among individuals but empirically, we measure the inequality of the distribution of household income and consumption. The fact that individual well-being is determined by the way in which the household, consisting of at least two adults with or without children, allocates its resources has of course been recognized in this literature for some time. Though new research has been conducted and is welcome, it suffers from the limitation that it continues effectively to assume that households have only two uses of their time, market labour supply and leisure, and so ignores the existence of household production and intra-family exchange of domestic for market output. But then, it provides no explanation of female labour supply heterogeneity. The recognition of the significance of household production as a form of time use upsets this approach to the household profoundly, and implies a limitation of conventional inequality measurement that is, in our view, of greater concern than that arising out of the recognition of the potential for intra-family inequality It implies that household labour income is no longer an unambiguous measure of household utility possibilities, and this has deep implications for the interpretation of inequality measures based on household income. In this chapter, we develop this point at some length, both theoretically and empirically, and go on to discuss its policy implications. The chapter is organized as follows. In the next section, we analyze a formal model from which we draw our conclusions on the significant implications of the existence of household production for inequality measurement, both within and across households. In Sect. 3, we present empirical evidence to substantiate the modelling approach and its conclusions, and go on to apply the discussion to tax/transfer policy. Section 4 concludes. (PsycINFO Database Record (c) 2016 APA, all rights reserved)