Jealousy and underconsumption in a one-sector model with wealth preference
AbstractThe present paper examines the effects of consumption externalities on economic performance in a one-sector model with wealth preference. The presence of the wealth preference generates a wealth effect in consumption growth, which plays a crucial role for consumption externalities to have impacts on the economy. Our main findings are: (i) regardless of the assumption of inelastic labor supply, the distortionary effect of consumption externalities stays in the long run; (ii) the income tax as well as the consumption tax can modify the efficiency; and (iii) the numerical simulations supplement theoretical findings.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Dynamics and Control.
Volume (Year): 33 (2009)
Issue (Month): 12 (December)
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Web page: http://www.elsevier.com/locate/jedc
Consumption externalities Wealth preference Wealth effect Optimal tax policy Intertemporal welfare;
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