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Limited self-control and long-run growth

  • Strulik, Holger

This paper integrates imperfect self-control into the standard model of endogenous growth. Individuals are conceptualized as dual-selves consisting of a long-run planner and a short-run doer. The long-run self can partly control the short-run self´s strife for immediate gratification. It is shown that the solution is structurally equivalent to the one of the standard endogenous growth model as long as self-control is sufficiently strong. Within a certain range of self-control an investment subsidy can be useful in order to reduce consumption and to increase investment, growth, and welfare of the long-run self. A consumption tax, perhaps surprisingly, is counterproductive. It induces individuals with limited self-control to consume even more.

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File URL: http://econstor.eu/bitstream/10419/88598/1/774876360.pdf
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Paper provided by University of Goettingen, Department of Economics in its series Center for European, Governance and Economic Development Research Discussion Papers with number 181.

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Date of creation: 2013
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Handle: RePEc:zbw:cegedp:181
Contact details of provider: Postal: Platz der Göttinger Sieben 3, 37073 Göttingen
Web page: http://www.cege.wiso.uni-goettingen.de/

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