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Growth and Keeping up with the Joneses

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  • Wendner, Ronald

Abstract

This paper investigates the impact of the desire to keep up with the Joneses (KUJ) on economic growth and optimal tax policy in a continuous time overlapping generations model with AK technology and gradual retirement. Due to the desire to KUJ, the propensity to consume out of total wealth rises (declines), and the balanced growth rate declines (increases) when the households' individual total (accumulated \emph{and} human) wealths are increasing (decreasing) with age. The rate of retirement determines whether or not a household's total wealth is increasing with age. If total wealth is increasing/decreasing with age, an optimal allocation is decentralized by a lump sum tax system that is progressive/regressive in age. The desire to KUJ strengthens the intergenerational regressivity (progressivity) of the optimal tax system.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18001.

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Date of creation: 19 Oct 2009
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Handle: RePEc:pra:mprapa:18001

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Keywords: Keeping up with the Joneses; AK growth; overlapping generations; gradual retirement; optimal taxation;

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  1. Francisco Alvarez-Cuadrado & Goncalo Monteiro & Stephen J. Turnovsky, 2004. "Habit Formation, Catching Up with the Joneses, and Economic Growth," Journal of Economic Growth, Springer, Springer, vol. 9(1), pages 47-80, 03.
  2. Erzo F.P. Luttmer, 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," NBER Working Papers, National Bureau of Economic Research, Inc 10667, National Bureau of Economic Research, Inc.
  3. Fisher, Walter H. & Heijdra, Ben J., 2009. "Keeping up with the ageing Joneses," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 33(1), pages 53-64, January.
  4. Wendner, Ronald, 2009. "Conspicuous Consumption and Overlapping Generations," MPRA Paper, University Library of Munich, Germany 15527, University Library of Munich, Germany.
  5. Stephen Turnovsky & Goncalo Monteiro, 2006. "Consumption Externalities, Production Externalities, and Efficient Capital Accumulation under Time Non-Separable Preferences," Working Papers, University of Washington, Department of Economics UWEC-2006-26-P, University of Washington, Department of Economics.
  6. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, American Economic Association, vol. 93(1), pages 423-428, March.
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  9. Sara J. Solnick & David Hemenway, 2005. "Are Positional Concerns Stronger in Some Domains than in Others?," American Economic Review, American Economic Association, American Economic Association, vol. 95(2), pages 147-151, May.
  10. Carlsson, Fredrik & Johansson-Stenman, Olof & Martinsson, Peter, 2003. "Do You Enjoy Having More Than Others? Survey Evidence of Positional Goods," Working Papers in Economics, University of Gothenburg, Department of Economics 100, University of Gothenburg, Department of Economics.
  11. Dirk Willenbockel, 2008. "Social time preference revisited," Journal of Population Economics, Springer, Springer, vol. 21(3), pages 609-622, July.
  12. Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2005. "How much do we care about absolute versus relative income and consumption?," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 56(3), pages 405-421, March.
  13. Olof Johansson-Stenman & Fredrik Carlsson & Dinky Daruvala, 2002. "Measuring Future Grandparents" Preferences for Equality and Relative Standing," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 112(479), pages 362-383, April.
  14. Johansson-Stenman, Olof & Martinsson, Peter, 2006. "Honestly, why are you driving a BMW?," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 60(2), pages 129-146, June.
  15. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, Elsevier, vol. 54(1), pages 87-92, January.
  16. David Neumark & Andrew Postlewaite, 1995. "Relative Income Concerns and the Rise in Married Women's Employment," NBER Working Papers, National Bureau of Economic Research, Inc 5044, National Bureau of Economic Research, Inc.
  17. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, Elsevier, vol. 89(5-6), pages 997-1019, June.
  18. J. Solnick, Sara & Hemenway, David, 1998. "Is more always better?: A survey on positional concerns," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 37(3), pages 373-383, November.
  19. Calvo, Guillermo A & Obstfeld, Maurice, 1988. "Optimal Time-Consistent Fiscal Policy with Finite Lifetimes," Econometrica, Econometric Society, Econometric Society, vol. 56(2), pages 411-32, March.
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Cited by:
  1. Aronsson, Thomas & Johansson-Stenman, Olof, 2013. "Publicly Provided Private Goods and Optimal Taxation when Consumers Have Positional Preferences," Working Papers in Economics, University of Gothenburg, Department of Economics 558, University of Gothenburg, Department of Economics.
  2. Aronsson, Thomas & Johansson-Stenman, olof, 2013. "State-Variable Public Goods and Social Comparisons over Time," Working Papers in Economics, University of Gothenburg, Department of Economics 555, University of Gothenburg, Department of Economics.
  3. Johansson-Stenman, Olof & Sterner, Thomas, 2013. "Discounting and Relative Consumption," Working Papers in Economics, University of Gothenburg, Department of Economics 559, University of Gothenburg, Department of Economics.
  4. Lloyd-Braga, Teresa & Modesto, Leonor, 2012. "Can Taxes Stabilize the Economy in the Presence of Consumption Externalities?," IZA Discussion Papers, Institute for the Study of Labor (IZA) 6876, Institute for the Study of Labor (IZA).
  5. Paul Eckerstorfer, 2011. "Relative Consumption Concerns and the Optimal Tax Mix," NRN working papers, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria 2011-12, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.

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