Optimal growth when tastes are inherited
AbstractWe address the issue of optimal growth when standard-of-living aspirations are transmitted from one generation to the next. We derive the condition for the optimal solution to be stable in the saddle-point sense and show that this optimal solution may display damped oscillations even when the planner does not discount the utility of future generations (golden rule case). The decentralization of the optimal solution aims at correcting the inter-generational externality by use of an investment subsidy and allows to avoid socially damaging rushes on consumption in expansion periods. It also allows to stabilize output in the case of competitive economies displaying endogenous fluctuations.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 1997012.
Date of creation: 01 Mar 1997
Date of revision: 00 Jun 1997
Externality; saddle-point stability; golden rule; oscillations; investment subsidy; stabilisation;
Other versions of this item:
- de La Croix, D. & Michel, P., 1997. "Optimal Growth When Tastes Are Inherited," G.R.E.Q.A.M. 97a21, Universite Aix-Marseille III.
- De La Croix, D. & Michel, P., 1997. "Optimal Growth when Tastes are Inherited," ASSET - Instituto De Economia Publica 168, ASSET (Association of Southern European Economic Theorists).
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-02-10 (All new papers)
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