Inferring Inequality with Home Production

In a recent working paper published by the Federal Reserve Bank of Minneapolis, Loukas Karabarbounis and Job Boerma consider how accounting for home production affects measures of inequality. Households spend roughly half as much  time in home production activities such as cooking, shopping, and child care, as in the market sector.

The authors find that accounting for home production amplifies welfare-based differences across households, meaning that inequality is larger than indicated by previous studies that did not take into account home production activities. Considering these findings, the optimal tax system should feature more progressivity taking into account home production.