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Luxury consumption, precautionary savings and wealth inequality

Campanale Claudio ()
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Campanale Claudio: Universidad de Alicante, Departamento de Fundamentos del Análisis Económico, Universidad de Alicante, Campus San Vicente del Raspeig, 03690, Alicante, Spain, Phone: +34 965903614, Fax: +34 965903898; and CeRP (Collegio Carlo Alberto), Via Real Collegio 30, 10024 Moncalieri (TO), Italy

The B.E. Journal of Macroeconomics, 2018, vol. 18, issue 1, 15

Abstract: Most macroeconomic models are based on the assumption of a single homogeneous consumption good. In the present paper we consider a model with two goods: a basic good and a luxury good. We then apply this assumption to a standard general equilibrium heterogeneous agent model. We find a substantial reduction in precautionary savings compared to a standard model. The effect on wealth inequality turns out to be ambiguous and to depend on the size of the assumed earnings risk.

Keywords: luxury consumption; non-homothetic utility; precautionary savings; wealth inequality (search for similar items in EconPapers)
JEL-codes: E21 (search for similar items in EconPapers)
Date: 2018
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