Growth and Keeping up with the Joneses

Wendner, Ronald (2009): Growth and Keeping up with the Joneses.

Abstract

This paper investigates the impact of the desire to keep up with the Joneses (KUJ) on economic growth and optimal tax policy in a continuous time overlapping generations model with AK technology and gradual retirement. Due to the desire to KUJ, the propensity to consume out of total wealth rises (declines), and the balanced growth rate declines (increases) when the households' individual total (accumulated \emph{and} human) wealths are increasing (decreasing) with age. The rate of retirement determines whether or not a household's total wealth is increasing with age. If total wealth is increasing/decreasing with age, an optimal allocation is decentralized by a lump sum tax system that is progressive/regressive in age. The desire to KUJ strengthens the intergenerational regressivity (progressivity) of the optimal tax system.

• Item Type: MPRA Paper
• Language: English
• Keywords: Keeping up with the Joneses, AK growth, overlapping generations, gradual retirement, optimal taxation
• Subjects: D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth

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