The implication of subsistence consumption for economic welfare

Qian Li, Myungkyu Shim and Yongheng Wen

Economics Letters, 2017, vol. 158, issue C, 30-33

Abstract: Using a subsistence consumption-augmented real business cycle model, we show that, for any given exogenous growth rates or parameter values, high initial subsistence levels increase the welfare cost of business cycles. This happens because subsistence consumption increases consumption volatility. Our finding suggests that eliminating economic fluctuations can be more beneficial to less-developed economies in which subsistence consumption is a high fraction of aggregate consumption. However, fast-growing economies exhibit a lower discrepancy of welfare costs between rich and poor countries, a result that also highlights the importance of growth-enhancing policies.

Keywords: Subsistence consumption-augmented RBC model; Business cycles in less-developed countries; Economic welfare (search for similar items in EconPapers)
JEL-codes: E20 E32 I31 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:158:y:2017:i:c:p:30-33

DOI: 10.1016/j.econlet.2017.06.038

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