Notes on Habit Formation and Socially Optimal Growth

Simone Valente

No 06/48, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: The interaction between habit formation and pollution-type ex- ternalities modifies the social optimum through discount effects and elasticity effects. If the substitution elasticity does not exceed unity, both effects reduce optimal consumption and capital in the long run, and the optimal capital-income tax increases with the relative impor- tance of habits. Similar results hold with high elasticity if the relative importance of habits is sufficiently high.

Keywords: externalities; habit formation; pollution; optimal growth. (search for similar items in EconPapers)
JEL-codes: D62 D91 E21 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2006-02
New Economics Papers: this item is included in nep-mac and nep-soc
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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