Growth, habit formation, and catching-up with the Joneses
When habits are introduced multiplicatively in a capital accumulation model, the consumers' objective function might fail to be concave. In this paper we provide conditions aimed at guaranteeing the existence of interior solutions to the consumers' problem. We also characterize the equilibrium path of two growth models with multiplicative habits: the internal habit formation model, where individual habits coincide with own past consumption, and the external habit formation (or catching-up with the Joneses) model, where habits arise from the average past consumption in the economy. We show that the introduction of external habits makes the equilibrium path inefficient during the transition towards the balanced growth path. We characterize in this context the optimal tax policy.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jaime Alonso-Carrera & Jordi Caballe & Xavier Raurich, 2001.
"Consumption Externalities, Habit Formation, and Equilibrium Efficiency,"
UFAE and IAE Working Papers
499.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
- Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2004. "Consumption Externalities, Habit Formation and Equilibrium Efficiency," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(2), pages 231-251, 06.
- Andrew B. Abel, 1998.
"Risk Premia and Term Premia in General Equilibrium,"
NBER Working Papers
6683, National Bureau of Economic Research, Inc.
- Abel, Andrew B., 1999. "Risk premia and term premia in general equilibrium," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 3-33, February.
- Carroll, Christopher D., 2000.
"Solving consumption models with multiplicative habits,"
Elsevier, vol. 68(1), pages 67-77, July.
- Christopher D Carroll, 2000. "Solving Consumption Models with Multiplicative Habits," Economics Working Paper Archive 421, The Johns Hopkins University,Department of Economics.
- repec:dgr:kubcen:199554 is not listed on IDEAS
- Jody Overland & Christopher D. Carroll & David N. Weil, 2000.
"Saving and Growth with Habit Formation,"
American Economic Review,
American Economic Association, vol. 90(3), pages 341-355, June.
- Christopher D. Carroll & Jody Overland & David N. Weil, 2000. "Mathematica code for 'Saving and Growth with Habit Formation' and 'Comparison Utility in a Growth Model'," QM&RBC Codes 43, Quantitative Macroeconomics & Real Business Cycles.
- Christopher D. Carroll & Jody Overland & David N. Weil, 1995. "Saving and growth with habit formation," Finance and Economics Discussion Series 95-42, Board of Governors of the Federal Reserve System (U.S.).
- Martin Lettau & Harald Uhlig, 2000.
"Can Habit Formation be Reconciled with Business Cycle Facts?,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 79-99, January.
- 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.
- Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
- A. Abel, 2010. "Asset prices under habit formation and catching up with the Jones," Levine's Working Paper Archive 1395, David K. Levine.
- Andrew B. Abel, . "Asset Prices Under Habit Formation and Catching Up With the Jones," Rodney L. White Center for Financial Research Working Papers 1-90, Wharton School Rodney L. White Center for Financial Research.
- Andrew B. Abel, 1990. "Asset Prices under Habit Formation and Catching up with the Joneses," NBER Working Papers 3279, National Bureau of Economic Research, Inc.
- Andrew B. Abel, . "Asset Prices Under Habit Formation and Catching Up With the Jones," Rodney L. White Center for Financial Research Working Papers 01-90, Wharton School Rodney L. White Center for Financial Research.
- Gali, J., 1992.
"Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice and Asset Prices,"
92-22, Columbia - Graduate School of Business.
- Gali, Jordi, 1994. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice, and Asset Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 26(1), pages 1-8, February.
- Jones, Larry E & Manuelli, Rodolfo E, 1990. "A Convex Model of Equilibrium Growth: Theory and Policy Implications," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1008-38, October.
- Judd, Kenneth L., 1985.
"Redistributive taxation in a simple perfect foresight model,"
Journal of Public Economics,
Elsevier, vol. 28(1), pages 59-83, October.
- Kenneth L. Judd, 1982. "Redistributive Taxation in a Simple Perfect Foresight Model," Discussion Papers 572, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- 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.
- Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
- Manishi Prasad & Peter Wahlqvist & Rich Shikiar & Ya-Chen Tina Shih, 2004. "A," PharmacoEconomics, Springer Healthcare | Adis, vol. 22(4), pages 225-244.
- Christopher D. Carroll & Jody Overland & David N. Weil, 1997.
"Comparison Utility in a Growth Model,"
NBER Working Papers
6138, National Bureau of Economic Research, Inc.
- Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May.
- Walter Fisher & Franz Hof, 2000. "Relative consumption, economic growth, and taxation," Journal of Economics, Springer, vol. 72(3), pages 241-262, October.
- Jhy-yuan Shieh & Ching-chong Lai & Wen-ya Chang, 2000. "Addictive behavior and endogenous growth," Journal of Economics, Springer, vol. 72(3), pages 263-273, October.
When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:49:y:2005:i:6:p:1665-1691. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.