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Title:The labor-supply elasticity and borrowing constraints: Why estimates are biased PDF Logo
Authors:Domeij, David
Flodén, Martin
Issue Date:2001
Series/Report no.:SSE/EFI Working Paper Series in Economics and Finance 480
Abstract:The labor-supply elasticity is a central element in many macroeconomic models. We argue that assumptions underlying previous econometric estimates of the intertemporal labor supply elasticity are inconsistent with incomplete markets economies. In particular, if the econometrician ignores borrowing constraints, the elasticity will be biased downwards. Within our model, the bias may be up to 50 percent. We find a similar bias in PSID data.
Subjects:labor supply elasticity
intertemporal substitution
liquidity constraints
JEL:C20
C50
E20
J22
Document Type:Working Paper
Appears in Collections:SSE/EFI Working Paper Series in Economics and Finance, EFI - The Economic Research Institute, Stockholm School of Economics

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