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On Habit and the Socially Efficient Level of Consumption and Work Effort

  • Paul Levine

    (University of Surrey)

  • Peter McAdam

    (University of Surrey and European Central Bank)

  • Peter Welz

    (European Central Bank)

We study relative preferences in a general equilibrium model where households make social comparisons and/or get habituated to levels of labour-effort they supply and goods they consume. Bayesian estimations for the US support the existence of a society based on such preferences. In particular, there is evidence that households a) make social comparisons and form habituation patterns in consumption and b) face peer-pressure when supplying labour and are aversely affected by it. Using our empirical estimates we provide numerical results for the optimal tax levels that correct for ine

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Paper provided by School of Economics, University of Surrey in its series School of Economics Discussion Papers with number 0713.

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Length: 37 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:sur:surrec:0713
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