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Keeping Up with or Running Away from the Joneses: the Barro Model Revisited

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  • Thi Kim Cuong Pham

Abstract

This paper reexamines the Barro growth model in a context of individualpreferences with consumption externality. Agents care about both consumption and social status, which is determined by their relative consumption in society. The results underline the individuals' preferences for status as a key role in explaining long term growth and welfare. In particular, a higher growth rate may correspond to a lower social welfare if increment in growth is explained by status-seeking a companied by the keeping up with the Joneses. Furthermore, we discuss two public financing systems from the viewpoint of growth and welfare.If lump-sum tax always implies a higher growth rate, income tax may perform better in terms of welfare when government size becomes sufficiently large.

Suggested Citation

  • Thi Kim Cuong Pham, 2018. "Keeping Up with or Running Away from the Joneses: the Barro Model Revisited," Working Papers of BETA 2018-29, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2018-29
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    Cited by:

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    2. Manuel A. Gómez, 2022. "The good, the bad and the worse: current, past and future consumption externalities and equilibrium efficiency," Journal of Economics, Springer, vol. 137(3), pages 195-228, December.
    3. Jean-Alain Heraud & Phu Nguyen-Van & Thi Kim Cuong Pham, 2023. "Public services, environmental quality and subjective well-being in a European city: the case of Strasbourg metropolitan area," Post-Print hal-04384531, HAL.
    4. Cheng‐wei Chang, 2023. "Optimal fiscal policy under monopolistic competition with firm heterogeneity," Scottish Journal of Political Economy, Scottish Economic Society, vol. 70(5), pages 423-438, November.

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    Keywords

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    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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