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.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (413) 545-6355
Fax: (413) 545-2921
Web page: http://www.peri.umass.edu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dirk Krueger & Fabrizio Perri, 2005.
"Does income inequality lead to consumption equality? evidence and theory,"
363, Federal Reserve Bank of Minneapolis.
- Dirk Kreuger & Fabrizio Perri, 2002. "Does Income Inequality Lead to Consumption Inequality? Evidence and Theory," Working Papers 02-15, New York University, Leonard N. Stern School of Business, Department of Economics.
- Krueger, Dirk & Perri, Fabrizio, 2005. "Does income inequality lead to consumption inequality? Evidence and theory," CFS Working Paper Series 2005/15, Center for Financial Studies (CFS).
- 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.
- Blanchflower, David G. & Oswald, Andrew J., 2004.
"Well-being over time in Britain and the USA,"
Journal of Public Economics,
Elsevier, vol. 88(7-8), pages 1359-1386, July.
- David G. Blanchflower & Andrew J. Oswald, 2000. "Well-Being Over Time in Britain and the USA," NBER Working Papers 7487, National Bureau of Economic Research, Inc.
- 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.
- Simon Kuznets & Lillian Epstein & Elizabeth Jenks, 1946. "National Product Since 1869," NBER Books, National Bureau of Economic Research, Inc, number kuzn46-1, August.
- 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.
- 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.
- Robert H. Frank, 2005. "Positional Externalities Cause Large and Preventable Welfare Losses," American Economic Review, American Economic Association, vol. 95(2), pages 137-141, May.
- 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.
- Christopher D Carroll, 1997.
"Why Do the Rich Save So Much?,"
Economics Working Paper Archive
388, The Johns Hopkins University,Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:uma:periwp:wp170. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Judy Fogg)
If references are entirely missing, you can add them using this form.