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Relative Consumption and Endogenous Labour Supply in the Ramsey Model: Do Status-Conscious People Work Too Much?

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Author Info
Fisher, Walter H. (Institute for Advanced Studies, Vienna)
Hof, Franz X. (Institute of Economics, University of Technology Vienna)

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Abstract

This paper introduces consumption externalities into a Ramsey-type model with endogenous labour supply and homogeneous agents. The instantaneous utility of any consumer is assumed to depend on work effort, own consumption and relative consumption, where the latter determines the individual's status in the society. Appropriate normality conditions with respect to consumption and leisure ensure that at least in the long run status-conscious individuals consume and work too much, compared to the social optimum, and that the capital stock is too high. Public policy can, however, induce the private sector to attain the social optimum by designing an optimal consumption tax policy.

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File URL: http://www.ihs.ac.at/publications/eco/es-85.pdf
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File Function: First version, 2000
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Publisher Info
Paper provided by Institute for Advanced Studies in its series Economics Series with number 85.

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Length: 19 pages
Date of creation: Sep 2000
Date of revision:
Handle: RePEc:ihs:ihsesp:85

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Related research
Keywords: Status; Relative consumption; Work effort;

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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

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. Gali, Jordi, 1994. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice, and Asset Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 1-8, February. [Downloadable!] (restricted)
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  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. [Downloadable!] (restricted)
  3. Walter Fisher & Franz Hof, 2000. "Relative consumption, economic growth, and taxation," Journal of Economics, Springer, vol. 72(3), pages 241-262, October. [Downloadable!] (restricted)
  4. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
  6. Persson, Mats, 1995. " Why Are Taxes So High in Egalitarian Societies?," Scandinavian Journal of Economics, Blackwell Publishing, vol. 97(4), pages 569-80, December.
  7. Harbaugh, Richmond, 1996. "Falling behind the Joneses: relative consumption and the growth-savings paradox," Economics Letters, Elsevier, vol. 53(3), pages 297-304, December. [Downloadable!] (restricted)
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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. Stephen J Turnovsky & Goncalo Monteiro, . "Consumption Externalities, Production Externalities and Efficient Capital Accumulation under Time Non-separable Preferences," Discussion Papers 05/08, Department of Economics, University of York. [Downloadable!]
    Other versions:
  2. Russell Davidson & Adriana Cornea, 2008. "A Refined Bootstrap For Heavy Tailed Distributions," Departmental Working Papers 2008-03, McGill University, Department of Economics. [Downloadable!]
  3. Walter H. Fisher, 2004. "Durable Consumption As A Status Good: A Study Of Neoclassical Cases," Computing in Economics and Finance 2004 96, Society for Computational Economics. [Downloadable!]
  4. Francisco Alvarez-Cuadrado, 2006. "Envy, Leisure, And Restrictions On Working Hours," Departmental Working Papers 2006-01, McGill University, Department of Economics. [Downloadable!]
    Other versions:
  5. Mihaela Pintea, 2006. "Leisure Externalities: Implications for Growth and Welfare," Working Papers 0609, Florida International University, Department of Economics. [Downloadable!]
  6. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "Relative Consumption and Resource Extraction," CIRANO Working Papers 2008s-27, CIRANO. [Downloadable!]
  7. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "The Relative Income Hypothesis," CIRANO Working Papers 2008s-18, CIRANO. [Downloadable!]
  8. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "A Permanent Income Version of the Relative Income Hypothesis," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  9. Fisher, Walter H. & Hof, Franz X., 2005. "The Quest for Status and Endogenous Labor Supply. The Relative Wealth Framework," Economics Series 181, Institute for Advanced Studies. [Downloadable!]
    Other versions:
  10. Ngo Van Long & Shengzu Wang, 2008. "Resource-Grabbing By Status-Conscious Agents," Departmental Working Papers 2008-08, McGill University, Department of Economics. [Downloadable!]
    Other versions:
  11. Fisher, Walter H., 2004. "Imports, Status Preference, and Foreign Borrowing," Economics Series 161, Institute for Advanced Studies. [Downloadable!]
    Other versions:
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