Gain versus pain from status and ambition: Effects on growth and inequality

Tournemaine, Frederic and Tsoukis, Christopher (2008): Gain versus pain from status and ambition: Effects on growth and inequality.

Abstract

To shed lights on growth, distribution and the relationships between the two, we develop a growth model with heterogeneous individuals who care about social status. Individuals' heterogeneity stems from two sources: their innate skills and their degree of ambition. While the willingness of individuals to accumulate wealth depends whether they experience gain or pain from loss of status, we show that ambition of individuals plays an important role regarding growth and distribution: ambition can inhibit or foster accumulation of wealth, then in turn growth. In such a context, we show that growth can be positively or negatively correlated with inequalities.

• Item Type: MPRA Paper
• Language: English
• Keywords: social aspirations, ambition, inequality, growth
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models

References

Abel A.B. (2005) Optimal Taxation when Consumers Have Endogenous Benchmark Levels of Consumption, Review of Economic Studies 72, pp. 21--42 Bowles S., Park T. (2005) Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right? Economic Journal, 115, pp. 397-412. Clark A.E., Oswald A.J. (1996) Satisfaction and comparison income, Journal of Public Economics, 61, pp. 359-381. Chen S., Ravallion M. (1997) What Can New Survey Data Tell Us about Recent Changes in Distribution and Poverty?, The World Bank Economic Review, 11, pp. 357-382. Choudhary, A., P. Levine, P. McAdam, P. Welz (2007) Relative Preferences, Happiness and Corrective Taxation, mimeo, University of Surrey. Corneo G., Jeanne O. (1997) On relative wealth effects and the optimality of growth, Economics letters, 54, pp. 87-92. Deninger K., L. Squire (1996) A New Data Set Measuring Income Inequality, The World Bank Economic Review, 10, pp. 565-591. Diener E., Fujita, F. (1997), Social Comparison and Subjective Well-being, in B. P. Buunk and R. Gibbons (eds.), Health, Coping and Well-being: Perspectives from Social Comparison Theory, Lawrence Erlbaum Associates, Inc., Mahwah, NJ, 329--357. Dusenberry J. (1949) Income, Saving, and the Theory of Consumer Behavior, Cambridge: Harvard University Press. Falk A., M. Knell (2004) Choosing the Joneses: Endogenous Goals and Reference Standards, Scandinavian Journal of Economics, 106 (3), pp. 417-435. Fershtman C., K.M. Murphy, Y. Weiss (1996) Social Status, Education and Growth, Journal of Political Economy, 104, pp. 108-132. Fisher W.H., Hof F.X. (2000) Relative consumption, economic growth and taxation, Journal of Economics, 73, pp. 241-262. Futagami K., Shibata A. (1998) Keeping one step ahead of the Joneses: Status, the distribution of wealth, and long run growth, Journal of Economic Behavior & Organization, 36, pp. 109-126. Maurer J, A Meier (2008) Smooth it Like the Joneses? Estimating Peer-Group Effects in Intertemporal Consumption Choice, The Economic Journal, 118, pp. 454-476. Partridge M. (1997) Is Inequality Harmful For Growth? Comment, American Economic Review, 87, pp. 1019-1032. Persson T. and G. Tabellini (1994), Is inequality harmful for growth? American Economic Review, 84, pp. 600-621. Pham T. K.C. (2005) Economic growth and Status-seeking through personal Wealth, European Journal of Political Economy, 21, pp. 404-427. Rauscher M. (1997) Conspicuous consumption, economic growth and taxation, Journal of Economics, 66, pp. 35-42. Romer P. (1986) Increasing Returns and Long-run Growth, Journal of Political Economy, 94, pp. 1002-1037. Tournemaine F. (2008) Social aspirations and choice of fertility: why can status motive reduce per-capita growth?, Journal of Population Economics 21, pp. 49-66. Tournemaine F., C. Tsoukis (2007) Status Jobs, Human Capital and Growth: the effects of heterogeneity, mimeo. Tournemaine F., C. Tsoukis (2008) Relative Consumption, Relative Wealth and Growth. Economics Letters, forthcoming. Tsoukis C. (2007) Keeping up with the Joneses, Growth, Distribution and optimal taxation. Scottish Journal of Political Economy, 54, pp. 575-600.