GROWTH, PENSIONS, AND THE AGING JONESES
Walter Fisher and
Ben Heijdra ()
Macroeconomic Dynamics, 2012, vol. 16, issue 1, 35-60
We incorporate keeping-up-with-the-Joneses (KUJ) preferences into the Blanchardâ€“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.
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