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Consumption, Wealth, Frugality, and Economic Growth

Author

Listed:
  • Zaifu Yang

    (Department of Economics and Related Studies, University of York, UK)

  • Rong Zhang

    (College of Economics and Business Administration, Chongqing University)

Abstract

In this paper we provide a quantitative analysis of how wealth may affect economic growth. In the economy, the utility of every individual depends on both consumption and wealth. Exploring a class of specific utility functions in which wealth has a weakening effect on the marginal utility of consumption, we find a closed-form solution of steady-state consumption, capital stock, savings rate, and convergence rate and obtain several novel results of wealth effects on economic growth. We also demonstrate that the new models can be calibrated to fit well with empirical observation.

Suggested Citation

  • Zaifu Yang & Rong Zhang, 2024. "Consumption, Wealth, Frugality, and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 25(1), pages 31-61, May.
    • Handle: RePEc:cuf:journl:y:2024:v:25:i:1:yangzhang
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    References listed on IDEAS

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    More about this item

    Keywords

    Economic growth; Wealth effects; Savings rate; Convergence rate;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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