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Conspicuous consumption and generation replacement in a model of perpetual youth

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  • Wendner, Ronald

Abstract

This paper investigates household decisions in an overlapping generations model in which individual utility depends on a weighted average of consumption of one's peers. In contrast to representative agent economies, the consumption externality generally affects savings and growth rates. The effects critically depend on the rate at which labor productivity changes with age. For a high (low) rate, the externality lowers (raises) the steady state propensity to consume out of total wealth. The optimal allocation can be decentralized by a (reverse) unfunded social security system if the rate of labor productivity decline is high (low). In contrast to discrete time OLG models, the optimal steady state capital income tax is zero, in spite of the externality.

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  • 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.
  • Handle: RePEc:eee:pubeco:v:94:y:2010:i:11-12:p:1093-1107
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    Cited by:

    1. Aronsson, Thomas & Johansson-Stenman, Olof, 2013. "Publicly Provided Private Goods and Optimal Taxation when Consumers Have Positional Preferences," Working Papers in Economics 558, University of Gothenburg, Department of Economics.
    2. 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.
    3. Johansson-Stenman, Olof & Sterner, Thomas, 2015. "Discounting and relative consumption," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 19-33.
    4. Evangelos V. Dioikitopoulos & Stephen J. Turnovsky & Roland Wendner, 2017. "Dynamic Status Effects, Savings, and Income Inequality," Graz Economics Papers 2017-08, University of Graz, Department of Economics.
    5. Aronsson, Thomas & Johansson-Stenman, Olof, 2016. "Inequality Aversion and Marginal Income Taxation," Working Papers in Economics 673, University of Gothenburg, Department of Economics.
    6. 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).
    7. Thomas Aronsson & Olof Johansson-Stenman, 2014. "When Samuelson Met Veblen Abroad: National and Global Public Good Provision when Social Comparisons Matter," Economica, London School of Economics and Political Science, vol. 81(322), pages 224-243, April.
    8. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "State-variable public goods and social comparisons," Journal of Environmental Economics and Management, Elsevier, vol. 68(2), pages 390-410.
    9. Aronsson, Thomas & Johansson-Stenman, Olof, 2015. "Keeping up with the Joneses, the Smiths and the Tanakas: On international tax coordination and social comparisons," Journal of Public Economics, Elsevier, vol. 131(C), pages 71-86.
    10. Thomas Aronsson & Olof Johansson-Stenman, 2013. "Veblen’s theory of the leisure class revisited: implications for optimal income taxation," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 41(3), pages 551-578, September.
    11. Aronsson, Thomas & Johansson-Stenman, olof, 2013. "State-Variable Public Goods and Social Comparisons over Time," Working Papers in Economics 555, University of Gothenburg, Department of Economics.
    12. 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).
    13. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "Positional preferences in time and space: Optimal income taxation with dynamic social comparisons," Journal of Economic Behavior & Organization, Elsevier, vol. 101(C), pages 1-23.
    14. Aronsson, Thomas & Johansson-Stenman, Olof, 2011. "State-Variable Public Goods When Relative Consumption Matters: A Dynamic Optimal Taxation Approach," Umeå Economic Studies 828, Umeå University, Department of Economics.

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