Optimal Growth When Tastes Are Inherited

David de la Croix and Philippe Michel

G.R.E.Q.A.M. from Universite Aix-Marseille III

Abstract: We adress the issue of optimal growth when standard-of-living aspirations are transmitted from one generation to the next. We derive the condition for the optimal solution to be stable in the saddle-point sense and show that this optimal solution may display damped oscillations even when the planner does not discount the utility of future generations (golden rule case). The decentralization of the optimal solution aims at correcting the inter-generational externality by use of an investment subsidy and allows to avoid socially damaging rushes on consumption in expansion periods. it also allows to stabilize output in the case of competitive economies displaying endogenous fluctuations.

Keywords: BUSINESS CYCLES; EXTERNALITIES (search for similar items in EconPapers)
JEL-codes: E32 O41 (search for similar items in EconPapers)
Pages: 16 pages
Date: 1997
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Optimal growth when tastes are inherited (1999)
Working Paper: Optimal growth when tastes are inherited (1997)
Working Paper: Optimal Growth when Tastes are Inherited (1997)
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Persistent link: https://EconPapers.repec.org/RePEc:fth:aixmeq:97a21

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