# Conspicuous Consumption and Overlapping Generations

## Author Info

• Wendner, Ronald

## Abstract

This paper investigates household decisions, and optimal taxation in an overlapping generations model in which individual utility depends on a weighted average of consumption of ones peers --- a keeping up with the Joneses'' consumption externality. In contrast to representative agent economies, the consumption externality \emph{generally} affects steady state savings and growth rates. The nature of the externality's impact, however, critically depends on the rate at which labor productivity declines with age. For a (strongly enough) declining labor productivity (or when people gradually retire), the consumption externality \emph{lowers} the steady state propensity to consume out of total wealth. The opposite holds for a constant labor productivity. The market economy can be decentralized by a (reverse) unfunded social security system if the rate of labor productivity decline is high (low). In contrast to previous results, the \emph{optimal} steady state capital income tax is zero, in spite of the consumption externality.

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File URL: http://mpra.ub.uni-muenchen.de/15527/1/MPRA_paper_15527.pdf
File Function: original version

## Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15527.

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 Length: Date of creation: 02 Jun 2009 Date of revision: Handle: RePEc:pra:mprapa:15527 Contact details of provider: Postal: Schackstr. 4, D-80539 Munich, GermanyPhone: +49-(0)89-2180-2219Fax: +49-(0)89-2180-3900Web page: http://mpra.ub.uni-muenchen.deMore information through EDIRC

## References

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