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Keeping up with the ageing Joneses

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  • Fisher, Walter H.
  • Heijdra, Ben J.

Abstract

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.

Suggested Citation

  • Fisher, Walter H. & Heijdra, Ben J., 2009. "Keeping up with the ageing Joneses," Journal of Economic Dynamics and Control, Elsevier, vol. 33(1), pages 53-64, January.
  • Handle: RePEc:eee:dyncon:v:33:y:2009:i:1:p:53-64
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    Citations

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    Cited by:

    1. Francisco Alvarez-Cuadrado & Ngo Van Long, 2012. "Envy and Inequality," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(3), pages 949-973, September.
    2. Walter H. Fisher & Ben J. Heijdra, 2008. "Growth and the Ageing Joneses," CESifo Working Paper Series 2466, CESifo Group Munich.
    3. Ronald Wendner, 2009. "Conspicuous Consumption and Overlapping Generations?," EERI Research Paper Series EERI_RP_2009_05, Economics and Econometrics Research Institute (EERI), Brussels.
    4. Alvarez-Cuadrado, Francisco & Van Long, Ngo, 2011. "The relative income hypothesis," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1489-1501, September.
    5. Prettner, Klaus & Hof, Franz, 2016. "The Quest for Status and R&D-based Growth," Annual Conference 2016 (Augsburg): Demographic Change 145554, Verein für Socialpolitik / German Economic Association.
    6. Borissov, Kirill, 2016. "The Rich And The Poor In A Simple Model Of Growth And Distribution," Macroeconomic Dynamics, Cambridge University Press, vol. 20(07), pages 1934-1952, October.
    7. Wendner, Ronald, 2010. "Conspicuous consumption and generation replacement in a model of perpetual youth," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 1093-1107, December.
    8. Wendner, Ronald, 2010. "Growth And Keeping Up With The Joneses," Macroeconomic Dynamics, Cambridge University Press, vol. 14(S2), pages 176-199, November.
    9. Schünemann, Johannes & Trimborn, Timo, 2017. "Boosting taxes for boasting about houses: Status concerns in the housing market," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 05/2017, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
    10. Yutaro Hatta, 2013. "Wealth Distribution Dynamics with Status Preference: asymmetric motivations for status," Discussion Papers in Economics and Business 13-08, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
    11. Wendner, Ronald, 2008. "Externalities in a Model of Perpetual Youth with Age-Dependent Productivity," MPRA Paper 11335, University Library of Munich, Germany.

    More about this item

    Keywords

    Relative consumption Overlapping generations Demographic shocks;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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