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Notes on Habit Formation and Socially Optimal Growth

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Author Info
Simone Valente () (Center of Economic Research, Swiss Federal Institute of Technology Zurich (ETH))

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Abstract

The interaction between habit formation and pollution-type ex- ternalities modifies the social optimum through discount effects and elasticity effects. If the substitution elasticity does not exceed unity, both effects reduce optimal consumption and capital in the long run, and the optimal capital-income tax increases with the relative impor- tance of habits. Similar results hold with high elasticity if the relative importance of habits is sufficiently high.

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Publisher Info
Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 06/48.

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Length: 13 pages
Date of creation: Feb 2006
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Handle: RePEc:eth:wpswif:06-48

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Related research
Keywords: externalities; habit formation; pollution; optimal growth.;

Find related papers by JEL classification:
D62 - Microeconomics - - Welfare Economics - - - Externalities
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Christopher D. Carroll & Jody Overland & David N. Weil, 1997. "Comparison Utility in a Growth Model," NBER Working Papers 6138, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June. [Downloadable!] (restricted)
  3. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2004. "Consumption Externalities, Habit Formation and Equilibrium Efficiency," Scandinavian Journal of Economics, Blackwell Publishing, vol. 106(2), pages 231-251, 06. [Downloadable!] (restricted)
    Other versions:
  4. Andrew B. Abel, 2005. "Optimal Taxation when Consumers Have Endogenous Benchmark Levels of Consumption," Review of Economic Studies, Blackwell Publishing, vol. 72(1), pages 21-42, 01. [Downloadable!] (restricted)
    Other versions:
  5. Ryder, Harl E, Jr & Heal, Geoffrey M, 1973. "Optimum Growth with Intertemporally Dependent Preferences," Review of Economic Studies, Blackwell Publishing, vol. 40(1), pages 1-33, January. [Downloadable!] (restricted)
  6. Francisco Alvarez-Cuadrado & Goncalo Monteiro & Stephen J. Turnovsky, 2004. "Habit Formation, Catching Up with the Joneses, and Economic Growth," Journal of Economic Growth, Springer, vol. 9(1), pages 47-80, 03. [Downloadable!]
    Other versions:
  7. Christopher D Carroll, 2000. "Solving Consumption Models with Multiplicative Habits," Economics Working Paper Archive 421, The Johns Hopkins University,Department of Economics. [Downloadable!]
    Other versions:
  8. Ronald Wendner, 2002. "Capital Accumulation and Habit Formation," Economics Bulletin, Economics Bulletin, vol. 4, pages 1-10. [Downloadable!]
  9. Tetsuo Ono, 2002. "Is habitual consumption harmful to the environment?," Economics Bulletin, Economics Bulletin, vol. 17(1), pages 1-10. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Masako Ikefuji, 2008. "Habit formation in an endogenous growth model with pollution abatement activities," Journal of Economics, Springer, vol. 94(3), pages 241-259, September. [Downloadable!] (restricted)
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