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Conspicious Consumption, Economic Growth, and Taxation: A Generalization

Author

Listed:
  • Fisher, Walter H.

    (Institute for Advanced Studies, Vienna)

  • Hof, Franz X.

    (Institute of Economics, University of Technology Vienna)

Abstract

This paper studies the infuence of consumption externalities in the Ramsey model. In contrast to the recent literature, a quite general specification of preferences is used and the concept of the effective intertemporal elasticity of substitution is introduced. We give conditions for the observational equivalence between economies with consumption externalities and externality-free economies. An additional key result is that there exist several types of instantaneous utility functions in which the decentralized solution coincides with the socially planned one in spite of the presence of consumption externalities. The conditions for optimal taxation are also derived.

Suggested Citation

  • Fisher, Walter H. & Hof, Franz X., 2000. "Conspicious Consumption, Economic Growth, and Taxation: A Generalization," Economics Series 77, Institute for Advanced Studies.
    • Handle: RePEc:ihs:ihsesp:77
    as

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    File URL: http://www.ihs.ac.at/publications/eco/es-77.pdf
    File Function: First version, 2000
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    References listed on IDEAS

    as
    1. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-116, March.
    2. Harbaugh, Richmond, 1996. "Falling behind the Joneses: relative consumption and the growth-savings paradox," Economics Letters, Elsevier, vol. 53(3), pages 297-304, December.
    3. Léonard,Daniel & Long,Ngo van, 1992. "Optimal Control Theory and Static Optimization in Economics," Cambridge Books, Cambridge University Press, number 9780521331586.
    4. Futagami, Koichi & Shibata, Akihisa, 1998. "Keeping one step ahead of the Joneses: Status, the distribution of wealth, and long run growth," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 109-126, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Social status; Conspicuous consumption; Economic growth;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • 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
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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