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

Author

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  • Thi Kim Cuong Pham

    (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique, EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

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.

Suggested Citation

  • Thi Kim Cuong Pham, 2019. "Keeping up with or running away from the Joneses : the Barro model revisited," Post-Print hal-02312316, HAL.
    • Handle: RePEc:hal:journl:hal-02312316
    DOI: 10.1007/s00712-018-0624-2
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    Cited by:

    1. Manuel A. Gómez, 2022. "The good, the bad and the worse: current, past and future consumption externalities and equilibrium efficiency," Journal of Economics, Springer, vol. 137(3), pages 195-228, December.
    2. Jean-Alain Heraud & Phu Nguyen-Van & Thi Kim Cuong Pham, 2023. "Public services, environmental quality and subjective well-being in a European city: the case of Strasbourg metropolitan area," Post-Print hal-04384531, HAL.

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    More about this item

    Keywords

    Income tax; Lump-sum tax; Keeping up with the Joneses; Public spending; Running away from the Joneses; Status-seeking;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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