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Status, endogenous reference standards, and the growth-inequality relation: A note

  • Tournemaine, frederic
  • Tsoukis, Chris

We develop an endogenous growth model with heterogeneous agents who care about their status in society. Following the social psychology literature, we formalise the idea that the reference standard to which people compare themselves is a choice variable. In such a framework, we analyse the determinants of the choice of the reference standard and their effects on growth and distribution. We show that low skilled individuals can end up with a higher level of income than high skilled individuals if their level of ambition is high enough. This is because what matters for the choice of reference standard and inequality is the combination of skills and ambitions of individuals. Moreover, as skills and ambitions affect positively growth, we find that growth and inequalities can be either negatively or positively correlated.

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File URL: https://mpra.ub.uni-muenchen.de/10420/1/MPRA_paper_10420.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10420.

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Date of creation: 11 Sep 2008
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Handle: RePEc:pra:mprapa:10420
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  1. Partridge, Mark D, 1997. "Is Inequality Harmful for Growth? Comment," American Economic Review, American Economic Association, vol. 87(5), pages 1019-32, December.
  2. Falk, Armin & Knell, Markus, 2004. "Choosing the Joneses: Endogenous Goals and Reference Standards," CEPR Discussion Papers 4459, C.E.P.R. Discussion Papers.
  3. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  4. Fershtman, C. & Murphy, K.M., 1993. "Social Status, Education and Growth," Papers 8-93, Tel Aviv.
  5. Frederic Tournemaine, 2008. "Social aspirations and choice of fertility: why can status motive reduce per-capita growth?," Journal of Population Economics, Springer;European Society for Population Economics, vol. 21(1), pages 49-66, January.
  6. Ravallion, Martin & Shaohua Chen, 1996. "What can new survey data tell us about recent changes in distribution and poverty?," Policy Research Working Paper Series 1694, The World Bank.
  7. Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999. "A Data Set on Income Distribution," CEMA Working Papers 575, China Economics and Management Academy, Central University of Finance and Economics.
  8. Chris Tsoukis, 2007. "Keeping Up With The Joneses, Growth, And Distribution," Scottish Journal of Political Economy, Scottish Economic Society, vol. 54(4), pages 575-600, 09.
  9. Clark, Andrew E. & Oswald, Andrew J., 1994. "Satisfaction and comparison income," CEPREMAP Working Papers (Couverture Orange) 9408, CEPREMAP.
  10. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
  11. Tournemaine, Frederic & Tsoukis, Christopher, 2010. "Gain versus pain from status and ambition: Effects on growth and inequality," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(2), pages 286-294, April.
  12. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January.
  13. Tournemaine, Frederic & Tsoukis, Christopher, 2008. "Relative consumption, relative wealth and growth," Economics Letters, Elsevier, vol. 100(2), pages 314-316, August.
  14. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  15. Pham, Thi Kim Cuong, 2005. "Economic growth and status-seeking through personal wealth," European Journal of Political Economy, Elsevier, vol. 21(2), pages 407-427, June.
  16. Walter Fisher & Franz Hof, 2000. "Relative consumption, economic growth, and taxation," Journal of Economics, Springer, vol. 72(3), pages 241-262, October.
  17. Jürgen Maurer & André Meier, 2008. "Smooth it Like the “Joneses?†Estimating Peer-Group Effects in Intertemporal Consumption Choice," MEA discussion paper series 08167, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  18. 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.
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