revised version published as "Family labor supply, taxation and saving in an imperfect capital market" in: Review of Economics of the Household, 2010, 8 (3), 297-323
This paper combines income and expenditure with time use data to provide a unique picture
of the time paths of labour supplies, saving and full consumption for two-adult households
over the life cycle. These data are used to test the life cycle model presented in the paper, at
the core of which is the hypothesis that households face a borrowing interest rate that rises
sharply with the amount of non collateral based borrowing. The household members jointly
choose time paths of time use, consumption and saving over their life cycle in the face of this
capital market imperfection. This model explains the data much better than does the
alternative hypothesis of a perfect capital market. Finally, households are shown to differ
significantly in their saving behaviour in a way that depends on secondary earner labour
supply, with a strong positive association between saving and the secondary earner’s
income.
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