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Growth and the Ageing Joneses

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  • Walter H. Fisher
  • Ben J. Heijdra

Abstract

We incorporate Keeping-up-with-the-Joneses (KUJ) preferences into the Blanchard-Yaari (BY) framework and develop, using an AK technology, a model of balanced growth. In this context we investigate status preference, demographic, and pension policy shocks. We find that a higher degree of KUJ lowers economic growth, while, in contrast, a decrease in the fertility and mortality rates increase it. In the second part of the paper we extend the model by incorporating a Pay-as-you-go (PAYG) pension system with a statutory retirement date. This introduces a life-cycle in human wealth earnings and implies that the growth rate is higher under PAYG. We also consider the implications of an increase in the retirement date under both defined benefit and defined contribution schemes.

Suggested Citation

  • Walter H. Fisher & Ben J. Heijdra, 2008. "Growth and the Ageing Joneses," CESifo Working Paper Series 2466, CESifo.
    • Handle: RePEc:ces:ceswps:_2466
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Turnovsky, Stephen J. & Monteiro, Goncalo, 2007. "Consumption externalities, production externalities, and efficient capital accumulation under time non-separable preferences," European Economic Review, Elsevier, vol. 51(2), pages 479-504, February.
    3. Francisco Alvarez-Cuadrado & Goncalo Monteiro & Stephen J. Turnovsky, 2004. "Habit Formation, Catching Up with the Joneses, and Economic Growth," Journal of Economic Growth, Springer, vol. 9(1), pages 47-80, March.
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    5. Fisher, Walter H. & Heijdra, Ben J., 2009. "Keeping up with the ageing Joneses," Journal of Economic Dynamics and Control, Elsevier, vol. 33(1), pages 53-64, January.
    6. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
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    8. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    9. Rebelo, Sergio, 1991. "Long-Run Policy Analysis and Long-Run Growth," Journal of Political Economy, University of Chicago Press, vol. 99(3), pages 500-521, June.
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    12. Wen-Fang Liu & Stephen Turnovsky, 2003. "Consumption Externalities, Production Externalities, and the Accumulation of Capital," Working Papers UWEC-2002-13-P, University of Washington, Department of Economics, revised Nov 2003.
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    More about this item

    Keywords

    relative consumption; OLG; endogenous growth; pension reform;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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