Consumption externalities, production externalities, and efficient capital accumulation under time non-separable preferences

Turnovsky, Stephen J.; Monteiro, Gonçalo

doi:10.1016/j.euroecorev.2005.12.001

Cited by 71 publications

(67 citation statements)

References 41 publications

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“…Obviously, when the reference is the others' consumption, then inefficiency of the equilibrium path is likely to arise. In a framework with infinitely lived agents, Alonso-Carrera, et al (2000), and Turnovsky and Monteiro (2005), among many others, have characterized the optimal tax rates that solve this kind of inefficiency. In the framework of OLG models, Abel (2005) shows that a capital income tax and a pay-as-you-go social security system constitute the optimal tax policy.…”

Section: Introductionmentioning

confidence: 99%

Estate taxes, consumption externalities, and altruism

Alonso-Carrera¹,

Caballé²,

Raurich³

2008

Journal of Public Economics

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We study how the introduction of consumption externalities affects the efficiency of the dynamic equilibrium in an economy displaying dynastic altruism. When the bequest motive is inoperative consumption externalities affect the intertemporal margin between young and old consumption and thus modify the intertemporal path of consumption and capital. The optimal tax policy that solves this intertemporal inefficiency consists of a tax on capital income and a pay-as-yougo social security system. The later solves the overaccumulation of capital due to the inoperativeness of the bequest motive and the former solves the inefficient allocation of consumption due to consumption externalities. When the bequest motive is operative consumption externalities only cause an intratemporal inefficiency that affects the allocation of consumption between the generations living in the same period but do not affect the optimality of the capital stock level. This suboptimal allocation of consumption implies in turn that the path of bequest is also suboptimal. The optimal tax policy in this case consists of an estate tax and a capital income tax. The estate tax corrects the intratemporal inefficiency but generates an intertemporal inefficiency which is corrected by means of an appropriate capital income tax. JEL classification codes: E21, E13, E62.

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Section: Introductionmentioning

confidence: 99%

Estate taxes, consumption externalities, and altruism

Alonso-Carrera¹,

Caballé²,

Raurich³

2008

Journal of Public Economics

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“…3 More recently, this literature has been extended-particularly in terms of an analysis of the economy's transitional dynamics-by Alvarez-Cuadrado et al (2004), and Turnovsky and Monteiro (2007), who incorporate a time non-separable preference structure based on the fundamental work of Ryder and Heal (1973) on habit formation. 4 While these studies have contributed many insights to our understanding of the aggregate implications of status preferences, the RA framework employed by all these researchers is, nevertheless, restrictive: since all agents are identical, all differences between them are eliminated in the symmetric macroeconomic equilibrium.…”

Section: Introductionmentioning

confidence: 99%

“…4 Both Alvarez-Cuadrado et al (2004), and Turnovsky and Monteiro (2007) employ an endogenous growth framework. Moreover, Turnovsky and Monteiro (2007) show that the results of Liu and Turnovsky (2005), regarding the conditions under which consumption externalities distort the economy's long run, extend to the time non-separable preference setting. 5 Abel (2005) derives the balanced-growth optimal capital tax and transfer policy.…”

Section: Introductionmentioning

confidence: 99%

Keeping up with the ageing Joneses

Fisher

Heijdra

2009

Journal of Economic Dynamics and Control

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In this paper we consider the implications of relative consumption externalities in the Blanchard-Yaari overlapping generations framework. Unlike most of the macroeconomic literature that studies this question, the differences between agents, and, thus, in their relative position, persist in equilibrium. We show in our fixed employment model that consumption externalities lower consumption and the capital stock in long-run equilibrium, a result in sharp contrast to the recent findings of Liu and Turnovsky (2005). In addition, we solve for the intertemporal path of the economy to investigate its response to demographic shocks, specifically, to permanent changes in the birth and death rates.JEL Codes: D91, E21

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“…From (22) it follows that the impact of the desire to KUJ on growth, g, is opposite to that on the propensity to consume out of accumulated wealth, x. Upon a rise in the reference parameter, either, the propensity to consume is increased -at the cost of a lower consumption growth rate.…”

Section: Proposition 1 the Impact Of The Desire To Kuj On The Balancementioning

confidence: 98%

Growth and Keeping Up With the Joneses

Wendner

2010

Macroecon. Dynam.

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Abstract. This paper investigates the impact of the desire to keep up with the Joneses (KUJ) on economic growth and optimal tax policy in a continuous time overlapping generations model with AK technology and gradual retirement. Due to the desire to KUJ, the propensity to consume out of total wealth rises (declines), and the balanced growth rate declines (increases) when the households' individual total (accumulated and human) wealths are increasing (decreasing) with age. The rate of retirement determines whether or not a household's total wealth is increasing with age. If total wealth is increasing (decreasing) with age, an optimal allocation is decentralized by an intergenerationally progressive (regressive) lump sum tax system. The desire to KUJ strengthens the intergenerational regressivity (progressivity) of the optimal tax system.

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Consumption externalities, production externalities, and efficient capital accumulation under time non-separable preferences

Cited by 71 publications

References 41 publications

Estate taxes, consumption externalities, and altruism

Estate taxes, consumption externalities, and altruism

Keeping up with the ageing Joneses

Growth and Keeping Up With the Joneses

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