Conspicuous Consumption and Overlapping Generations?

Arbeitspapier

This paper investigates household decisions, and optimal taxation in an overlapping generations model in which individual utility depends on a weighted average of consumption of ones peers — a “keeping up with the Joneses” consumption externality. In contrast to representative agent economies, the consumption externality generally a?ects steady state savings and growth rates. The nature of the externality’s impact, however, critically depends on the rate at which labor productivity declines with age. For a (strongly enough) declining labor productivity (or when people gradually retire), the consumption externality lowers the steady state propensity to consume out of total wealth. The opposite holds for a constant labor productivity. The market economy can be decentralized by a (reverse) unfunded social security system if the rate of labor productivity decline is high (low). In contrast to previous results, the optimal steady state capital income tax is zero, in spite of the consumption externality.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: EERI Research Paper Series ; No. 05/2009

Classification and Topics

• Classification: Wirtschaft ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Macroeconomics: Consumption; Saving; Wealth ; Economic Growth and Aggregate Productivity: General
• Subject: Consumption externality ; labor productivity ; gradual retirement ; overlapping generations ; keeping up with the Joneses ; optimal taxation ; capital taxation

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Wendner, Ronald
• Event: Veröffentlichung
• (who): Economics and Econometrics Research Institute (EERI)
• (where): Brussels
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/142537
• Last update: 10.03.2025, 11:42 AM CET