Keeping up with or running away from the Joneses: the Barro model revisited

Thi Kim Cuong Pham ()

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Abstract: This paper reexamines the Barro growth model in a context of interdependent preferences with consumption externality. Agents care about both consumption and social status, which is determined by their relative consumption in society. The results underline the individuals' preferences for status as a key role in explaining long term growth and welfare. In particular, a higher growth rate may correspond to a lower social welfare if increment in growth is explained by status-seeking accompanied by the keeping up with the Joneses. Furthermore, we discuss two public financing systems from the viewpoint of growth and welfare. If lump-sum tax always implies a higher growth rate, income tax may perform better in terms of welfare when government size becomes sufficiently large.

Keywords: Income tax; Lump-sum tax; Keeping up with the Joneses; Public spending; Running away from the Joneses; Status-seeking (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

Published in Journal of Economics, 2019, 126 (2), pp.179-192. ⟨10.1007/s00712-018-0624-2⟩

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Journal Article: Keeping up with or running away from the Joneses: the Barro model revisited (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02312316

DOI: 10.1007/s00712-018-0624-2

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