 Do positional preferences for wealth and consumption cause inter-temporal distortions?MPRA Paper from University Library of Munich, Germany Abstract: This paper derives necessary and sufficient conditions under which positional preferences do not induce inter-temporal distortions. When labor supply is exogenous, positional preferences for consumption have been shown to be non-distortionary for a class of models. However, it has not been explored whether the same holds when households also exhibit positional preferences for wealth. The analysis identifies a restricted homogeneity-property which, when not satisfied, induces positional preferences to be distortionary, despite inelastic labor supply. Without positional preferences for wealth, a constant marginal rate of substitution-property is necessary and sufficient for a consumption positionality to be non-distortionary. Once a household also has positional preferences for wealth in addition, the consumption positionality almost always becomes distortionary, as the implied effects of the positional concerns induce opposing effects on a household's saving behavior. Under a constant marginal rates of substitution-property, these opposing effects exactly offset each other. Keywords: Status; keeping up with the Joneses; positional preferences; distortion; endogenous growth; $Ak$ model (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:64086 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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