Limited self-control and long-run growth
AbstractThis paper integrates imperfect self-control into the standard model of endogenous growth. Individuals are conceptualized as dual-selves consisting of a long-run planner and a short-run doer. The long-run self can partly control the short-run self´s strife for immediate gratification. It is shown that the solution is structurally equivalent to the one of the standard endogenous growth model as long as self-control is sufficiently strong. Within a certain range of self-control an investment subsidy can be useful in order to reduce consumption and to increase investment, growth, and welfare of the long-run self. A consumption tax, perhaps surprisingly, is counterproductive. It induces individuals with limited self-control to consume even more. --
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Bibliographic InfoPaper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 181.
Date of creation: 2013
Date of revision:
temptation; self-control; consumption; investment; endogenous growth;
Find related papers by JEL classification:
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-29 (All new papers)
- NEP-DGE-2013-12-29 (Dynamic General Equilibrium)
- NEP-EVO-2013-12-29 (Evolutionary Economics)
- NEP-GRO-2013-12-29 (Economic Growth)
- NEP-MAC-2013-12-29 (Macroeconomics)
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