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| Author: | Wendner, R. |
| Title: | Conspicuous consumption and generation replacement in a model of perpetual youth |
| Journal: | Journal of Public Economics
2010 : DEC, VOL 94:11-12 p. 1093-1107 |
| Index terms: | consumption externalities productivity retirement capital taxation savings |
| Language: | eng |
| Abstract: | This research studies household decisions in an overlapping generations model where individual utility depends on a weighted average of consumption of one's peers. Contrary to representative agent economies, the consumption externality generally has an effect on savings and growth rates. The effects critically depend on labor productivity's changes over age. For a high (low) rate of change, the externality lowers (raises) the steady state tendency to consume out of total wealth. The optimal allocation can be decentralized by a (reverse) unfunded social security system if the labor productivity decline is major (minor). In contrast to discrete time OLG models, the optimal steady state capital income tax is zero, regardless of the externality. |
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