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Growth and Keeping up with the Joneses

  • Wendner, Ronald

This paper investigates the impact of the desire to keep up with the Joneses (KUJ) on economic growth and optimal tax policy in a continuous time overlapping generations model with AK technology and gradual retirement. Due to the desire to KUJ, the propensity to consume out of total wealth rises (declines), and the balanced growth rate declines (increases) when the households' individual total (accumulated \emph{and} human) wealths are increasing (decreasing) with age. The rate of retirement determines whether or not a household's total wealth is increasing with age. If total wealth is increasing/decreasing with age, an optimal allocation is decentralized by a lump sum tax system that is progressive/regressive in age. The desire to KUJ strengthens the intergenerational regressivity (progressivity) of the optimal tax system.

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File URL: https://mpra.ub.uni-muenchen.de/18001/1/MPRA_paper_18001.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 18001.

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Date of creation: 19 Oct 2009
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Handle: RePEc:pra:mprapa:18001
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  1. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January.
  2. Christopher D Carroll & Jody Overland & David N Weil, 1997. "Comparison Utility in a Growth Model," Economics Working Paper Archive 387, The Johns Hopkins University,Department of Economics.
  3. Luttmer, Erzo F. P., 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," Working Paper Series rwp04-029, Harvard University, John F. Kennedy School of Government.
  4. Carlsson, Fredrik & Johansson-Stenman, Olof & Martinsson, Peter, 2003. "Do You Enjoy Having More Than Others? Survey Evidence of Positional Goods," Working Papers in Economics 100, University of Gothenburg, Department of Economics.
  5. Francisco Alvarez-Cuadrado & Goncalo Monteiro & Stephen J. Turnovsky, 2004. "Habit Formation, Catching Up with the Joneses, and Economic Growth," Journal of Economic Growth, Springer, vol. 9(1), pages 47-80, 03.
  6. J. Solnick, Sara & Hemenway, David, 1998. "Is more always better?: A survey on positional concerns," Journal of Economic Behavior & Organization, Elsevier, vol. 37(3), pages 373-383, November.
  7. Olof Johansson-Stenman & Fredrik Carlsson & Dinky Daruvala, 2002. "Measuring Future Grandparents" Preferences for Equality and Relative Standing," Economic Journal, Royal Economic Society, vol. 112(479), pages 362-383, April.
  8. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
  9. Stephen J Turnovsky & Goncalo Monteiro, . "Consumption Externalities, Production Externalities and Efficient Capital Accumulation under Time Non-separable Preferences," Discussion Papers 05/08, Department of Economics, University of York.
  10. Calvo, Guillermo A & Obstfeld, Maurice, 1988. "Optimal Time-Consistent Fiscal Policy with Finite Lifetimes," Econometrica, Econometric Society, vol. 56(2), pages 411-32, March.
  11. Sara J. Solnick & David Hemenway, 2005. "Are Positional Concerns Stronger in Some Domains than in Others?," American Economic Review, American Economic Association, vol. 95(2), pages 147-151, May.
  12. Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2005. "How much do we care about absolute versus relative income and consumption?," Journal of Economic Behavior & Organization, Elsevier, vol. 56(3), pages 405-421, March.
  13. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
  14. Fisher, Walter H. & Heijdra, Ben J., 2007. "Keeping up with the Ageing Joneses," Economics Series 204, Institute for Advanced Studies.
  15. Johansson-Stenman, Olof & Martinsson, Peter, 2004. "Honestly, why are you driving a BMW?," Working Papers in Economics 141, University of Gothenburg, Department of Economics.
  16. McBride, Michael, 2001. "Relative-income effects on subjective well-being in the cross-section," Journal of Economic Behavior & Organization, Elsevier, vol. 45(3), pages 251-278, July.
  17. Ronald Wendner, 2009. "Conspicuous Consumption and Overlapping Generations?," EERI Research Paper Series EERI_RP_2009_05, Economics and Econometrics Research Institute (EERI), Brussels.
  18. Neumark, David & Postlewaite, Andrew, 1998. "Relative income concerns and the rise in married women's employment," Journal of Public Economics, Elsevier, vol. 70(1), pages 157-183, October.
  19. Dirk Willenbockel, 2008. "Social time preference revisited," Journal of Population Economics, Springer;European Society for Population Economics, vol. 21(3), pages 609-622, July.
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