The Relative Income Theory of Consumption: A Synthetic Keynes-Duesenberry-Friedman Model
This paper presents a theoretical model of consumption behavior that synthesizes the seminal contributions of Keynes (1936), Friedman (1956) and Duesenberry (1948). The model is labeled a “relative permanent income” theory of consumption. The key feature is that the share of permanent income devoted to consumption is a negative function of household relative permanent income. The model generates patterns of consumption spending consistent with both long-run time series data and modern empirical findings that high-income households have a higher propensity to save. It also explains why consumption inequality is less than income inequality.
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- Dirk Kreuger & Fabrizio Perri, 2002.
"Does Income Inequality Lead to Consumption Inequality? Evidence and Theory,"
02-15, New York University, Leonard N. Stern School of Business, Department of Economics.
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- Dirk Krueger & Fabrizio Perri, 2002. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory," NBER Working Papers 9202, National Bureau of Economic Research, Inc.
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"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.
- Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2001. "How Much Do We Care About Absolute Versus Relative Income and Consumption?," Working Papers in Economics 63, University of Gothenburg, Department of Economics.
- Blanchflower, David G. & Oswald, Andrew J., 2001.
"Well-Being Over Time in Britain and the USA,"
The Warwick Economics Research Paper Series (TWERPS)
616, University of Warwick, Department of Economics.
- Thomas I. Palley, 1993. "Under-Consumption and the Accumulation Motive," Review of Radical Political Economics, Union for Radical Political Economics, vol. 25(1), pages 71-86, March.
- Simon Kuznets & Lillian Epstein & Elizabeth Jenks, 1946. "National Product Since 1869," NBER Books, National Bureau of Economic Research, Inc, number kuzn46-1.
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