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Smooth it Like the “Joneses?” Estimating Peer-Group Effects in Intertemporal Consumption Choice

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  • Jürgen Maurer

    ()

  • André Meier

    (Munich Center for the Economics of Aging (MEA))

Abstract

Recent theoretical contributions have suggested peer-group effects as a potential explanation for several puzzles in macroeconomics, but their empirical relevance for intertemporal consumption choice is an open question. We derive an extension of the standard life-cycle model that allows for consumption externalities. In this framework, we propose a social multiplier approach to distinguish true externalities from merely correlated effects. Estimating our model using US panel data, we find strong predictable co-movement of household consumption within peer groups. Although much of this co-movement reflects correlated effects only, there is statistically significant evidence for moderate consumption externalities across several plausible peer-group specifications.

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Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 08167.

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Date of creation: 23 Sep 2008
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Handle: RePEc:mea:meawpa:08167

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Cited by:
  1. Paolo Gelain & Kevin J. Lansing, 2013. "House prices, expectations, and time-varying fundamentals," Working Paper Series 2013-03, Federal Reserve Bank of San Francisco.
  2. Kenneth Arrow & Partha Dasgupta, 2009. "Conspicuous consumption, inconspicuous leisure," The School of Economics Discussion Paper Series, Economics, The University of Manchester 0903, Economics, The University of Manchester.
  3. Francisco Alvarez-Cuadrado & Jose Maria Casado & Jose Maria Labeaga & Dhanoos Sutthiphisal, 2012. "Envy and habits: panel data estimates of interdependent preferences," Banco de Espa�a Working Papers 1213, Banco de Espa�a.
  4. Paul Eckerstorfer & Ronald Wendner, 2013. "Asymmetric and Non-atmospheric Consumption Externalities, and Efficient Consumption Taxation," Graz Economics Papers 2013-01, University of Graz, Department of Economics.
  5. Rob Alessie & Federica Teppa, 2010. "Saving and habit formation: evidence from Dutch panel data," Empirical Economics, Springer, vol. 38(2), pages 385-407, April.
  6. Tsoukis, Christopher & Tournemaine, Frederic, 2010. "Status in a canonical macro model: labour supply, growth, and inequality," MPRA Paper 26480, University Library of Munich, Germany.
  7. Tournemaine, frederic & Tsoukis, Chris, 2008. "Status, endogenous reference standards, and the growth-inequality relation: A note," MPRA Paper 10420, University Library of Munich, Germany.
  8. Tournemaine, Frederic & Tsoukis, Christopher, 2008. "Gain versus pain from status and ambition: Effects on growth and inequality," MPRA Paper 8670, University Library of Munich, Germany.
  9. Lloyd-Braga, Teresa & Modesto, Leonor, 2012. "Can Taxes Stabilize the Economy in the Presence of Consumption Externalities?," IZA Discussion Papers 6876, Institute for the Study of Labor (IZA).
  10. Airaudo, Marco, 2013. "Monetary policy, stock prices, and consumption externalities," Economics Letters, Elsevier, vol. 120(3), pages 537-541.
  11. Matteo Barigozzi & Biagio Speciale, 2011. "Immigrants' legal status, permanence in the destination country and the distribution of consumption expenditure," Applied Economics Letters, Taylor & Francis Journals, vol. 18(14), pages 1341-1347.
  12. Kazuo MIno & Yasuhiro Nakamoto, 2014. "Conformism and Wealth Distribution," KIER Working Papers 901, Kyoto University, Institute of Economic Research.
  13. Heffetz, Ori, 2012. "Who sees what? Demographics and the visibility of consumer expenditures," Journal of Economic Psychology, Elsevier, vol. 33(4), pages 801-818.
  14. Benjamin Volland, 2013. "On the intergenerational transmission of preferences," Journal of Bioeconomics, Springer, vol. 15(3), pages 217-249, October.

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