GROWTH, PENSIONS, AND THE AGING JONESES

Walter Fisher and Ben Heijdra ()

Macroeconomic Dynamics, 2012, vol. 16, issue 1, 35-60

Abstract: We incorporate keeping-up-with-the-Joneses (KUJ) preferences into the Blanchard–Yaari framework and develop a model of balanced growth. In this context we investigate status preference, demographic shocks, and pension policy. We find that a higher degree of KUJ lowers economic growth, whereas, in contrast, a decrease in the fertility and mortality rates increase it. In the second part of the paper we extend the model by incorporating a pay-as-you-go (PAYG) pension system with a statutory retirement date. The latter implies that the growth rate is higher under PAYG. We also consider the implications of pension reform under both defined benefit and defined contribution schemes.

Date: 2012
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