Positional Preferences, Endogenous Growth, and Optimal Income- and Consumption Taxation

Sugata Ghosh and Ron Wendner

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes the impact of positional preferences, exhibiting conspicuous consumption and conspicuous wealth, on optimal consumption- and income taxes, for an endogenous growth model with public capital. Positional preferences raise the endogenous growth rate if the elasticity of intertemporal substitution is larger than one. Even if labor supply is exogenous, the consumption externalities introduce distortions so long as preferences are wealth-dependent, and with or without the presence of conspicuous wealth. Consequently, optimal consumption- and income taxes differ from zero. Numerical simulations present the effects of fiscal policy on the balanced growth path and transitional dynamics.

Keywords: Conspicuous consumption; conspicuous wealth; endogenous growth; public capital; optimal consumption tax (search for similar items in EconPapers)
JEL-codes: D62 D91 E21 H21 O41 (search for similar items in EconPapers)
Date: 2014-11-24
New Economics Papers: this item is included in nep-fdg, nep-gro, nep-mac, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:60337

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