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Keeping up with the ageing Joneses

Listed author(s):
  • Fisher, Walter H.
  • Heijdra, Ben J.

In this paper we consider the implications of relative consumption externalities in the Blanchard-Yaari overlapping generations framework. Unlike most of the macroeconomic literature that studies this question, the differences between agents, and, thus, in their relative position, persist in equilibrium. We show in our fixed employment model that consumption externalities lower consumption and the capital stock in long-run equilibrium, a result in sharp contrast to the recent findings of Liu and Turnovsky [2005. Consumption externalities, production externalities, and the accumulation of capital. Journal of Public Economics 89, 1097-1129]. In addition, we solve for the intertemporal path of the economy to investigate its response to demographic shocks, specifically, to permanent changes in the birth and death rates.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 33 (2009)
Issue (Month): 1 (January)
Pages: 53-64

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Handle: RePEc:eee:dyncon:v:33:y:2009:i:1:p:53-64
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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  1. Abel, A.B., 1990. "Asset Prices Under Habit Formation And Catching Up With The Joneses," Weiss Center Working Papers 1-90, Wharton School - Weiss Center for International Financial Research.
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  20. Leon Bettendorf & Ben Heijdra, 2005. "Population Ageing and Pension Reform in a Small Open Economy with Non-Traded Goods," Tinbergen Institute Discussion Papers 05-021/2, Tinbergen Institute.
  21. Heijdra, B.J. & Ligthart, J.E., 2004. "The Macroeconomic Dynamics of Demographic Shocks," Discussion Paper 2004-90, Tilburg University, Center for Economic Research.
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  26. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January.
  27. Corneo, Giacomo & Jeanne, Olivier, 2001. " Status, the Distribution of Wealth, and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(2), pages 283-293, June.
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  30. Walter Fisher & Franz Hof, 2000. "Relative consumption, economic growth, and taxation," Journal of Economics, Springer, vol. 72(3), pages 241-262, October.
  31. Wen-Fang Liu & Stephen Turnovsky, 2003. "Consumption Externalities, Production Externalities, and the Accumulation of Capital," Working Papers UWEC-2002-13-P, University of Washington, Department of Economics, revised Nov 2003.
  32. Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June.
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