Positional Preferences and Efficiency in a Dynamic Economy

Aronsson, Thomas and Ghosh, Sugata and Wendner, Ronald (2020): Positional Preferences and Efficiency in a Dynamic Economy.

Abstract

Based on an endogenous growth model, this paper characterizes the conditions under which positional preferences do not give rise to intertemporal distortions as well as derives an optimal tax policy response in cases where these conditions are not satisfied. In our model, individuals can be positional both in terms of their consumption and wealth, the relative concerns partly reflect comparisons with people in other countries, and we distinguish between a (conventional) welfarist government and a paternalist government that does not respect positional preferences. We also extend the analysis to a multi-country framework and show that Nash-competition among local paternalist governments leads to a global social optimum, whereas Nash-competition among local welfarist governments does not.

• Item Type: MPRA Paper
• Language: English
• Keywords: Positional preferences, efficiency, intertemporal distortions, welfarist government, paternalist government, endogenous growth
• Subjects: D - Microeconomics > D6 - Welfare Economics > D62 - Externalities; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination; H - Public Economics > H1 - Structure and Scope of Government > H11 - Structure, Scope, and Performance of Government; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O43 - Institutions and Growth

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