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Conspicious Consumption, Economic Growth, and Taxation: A Generalization

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  • Fisher, Walter H.

    (Institute for Advanced Studies, Vienna)

  • Hof, Franz X.

    (Institute of Economics, University of Technology Vienna)

Abstract

This paper studies the infuence of consumption externalities in the Ramsey model. In contrast to the recent literature, a quite general specification of preferences is used and the concept of the effective intertemporal elasticity of substitution is introduced. We give conditions for the observational equivalence between economies with consumption externalities and externality-free economies. An additional key result is that there exist several types of instantaneous utility functions in which the decentralized solution coincides with the socially planned one in spite of the presence of consumption externalities. The conditions for optimal taxation are also derived.

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File URL: http://www.ihs.ac.at/publications/eco/es-77.pdf
File Function: First version, 2000
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Bibliographic Info

Paper provided by Institute for Advanced Studies in its series Economics Series with number 77.

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Length: 24 pages
Date of creation: Mar 2000
Date of revision:
Handle: RePEc:ihs:ihsesp:77

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Related research

Keywords: Social status; Conspicuous consumption; Economic growth;

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References

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  1. L‚onard,Daniel & Long,Ngo van, 1992. "Optimal Control Theory and Static Optimization in Economics," Cambridge Books, Cambridge University Press, number 9780521337465.
  2. Futagami, Koichi & Shibata, Akihisa, 1998. "Keeping one step ahead of the Joneses: Status, the distribution of wealth, and long run growth," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 109-126, July.
  3. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-16, March.
  4. Harbaugh, Richmond, 1996. "Falling behind the Joneses: relative consumption and the growth-savings paradox," Economics Letters, Elsevier, vol. 53(3), pages 297-304, December.
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