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Luxury consumption, precautionary savings and wealth inequality

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  • Campanale Claudio

    (Universidad de Alicante, Departamento de Fundamentos del Análisis Económico, Universidad de Alicante, Campus San Vicente del Raspeig, 03690, Alicante, Spain, Phone: +34 965903614, Fax: +34 965903898; and CeRP (Collegio Carlo Alberto), Via Real Collegio 30, 10024 Moncalieri (TO), Italy)

Abstract

Most macroeconomic models are based on the assumption of a single homogeneous consumption good. In the present paper we consider a model with two goods: a basic good and a luxury good. We then apply this assumption to a standard general equilibrium heterogeneous agent model. We find a substantial reduction in precautionary savings compared to a standard model. The effect on wealth inequality turns out to be ambiguous and to depend on the size of the assumed earnings risk.

Suggested Citation

  • Campanale Claudio, 2018. "Luxury consumption, precautionary savings and wealth inequality," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(1), pages 1-15, January.
    • Handle: RePEc:bpj:bejmac:v:18:y:2018:i:1:p:15:n:3
    DOI: 10.1515/bejm-2015-0196
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    Cited by:

    1. Hyun Jin Jang & Zuo Quan Xu & Harry Zheng, 2020. "Optimal Investment, Heterogeneous Consumption and Best Time for Retirement," Papers 2008.00392, arXiv.org, revised Jun 2022.

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    More about this item

    Keywords

    luxury consumption; non-homothetic utility; precautionary savings; wealth inequality;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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