Growth, Habit Formation, and Catching-up with the Joneses

Please use this identifier to cite or link to this item: http://dspace.mediu.edu.my:8181/xmlui/handle/10261/1946

Title:	Growth, Habit Formation, and Catching-up with the Joneses
Keywords:	Endogenous Growth Habit Formation Consumption externalities Optimal Taxation
Description:	When habits are introduced multiplicatively in a capital accumulation model, the consumers' objective function might fail to be concave. In this paper we provide conditions aimed at guaranteeing the existence of interior solutions to the consumers' problem. We also characterize the equilibrium path of two growth models with multiplicative habits: the internal habit formation model, where individual habits coincide with own past consumption, and the external habit formation (or catching-up with the Joneses) model, where habits arise from the average past consumption in the economy. We show that the introduction of external habits makes the equilibrium path inefficient during the transition towards the balanced growth path. We characterize in this context the optimal tax policy. Financial support from the Spanish Ministry of Science and Technology through grants SEC2000-0684, BEC2002-01995 and HI2001-0039, the Generalitat of Catalonia through the Barcelona Economics program (CREA) and grant SGR2001-00162 is gratefully acknowledged.
URI:	http://dspace.mediu.edu.my:8181/xmlui/handle/10261/1946
Other Identifiers:	http://hdl.handle.net/10261/1946
Appears in Collections:	Digital Csic

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