Journal of Economics

, Volume 126, Issue 2, pp 179–192 | Cite as

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

  • Thi Kim Cuong PhamEmail author


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.


Income tax Lump-sum tax Keeping up with the Joneses Public spending Running away from the Joneses Status-seeking 

JEL Classification

D90 H20 H54 O41 


  1. Alvarez-Cuadrado F, Casado JM, Labeaga JM (2015) Envy and habits: panel data estimates of interdependent preferences. Oxford Bulletin of Economics and Statistics 0305–9049.
  2. Barro RJ (1990) Government spending in a simple model of endogenous growth. J Polit Econ 98:S103–S125CrossRefGoogle Scholar
  3. Brekke K-A, Howarth RB (2002) Status, growth and the environment: goods as symbols in applied welfare economics. Edward Elgar, NorthamptonGoogle Scholar
  4. Clark A, Frijters P, Shields M (2008) Relative income, happiness and utility: an explanations for easterlin paradox and other puzzles. J Econ Lit 46:95–144CrossRefGoogle Scholar
  5. Corneo G, Jeanne O (1997) Relative wealth effects and the optimality of growth. Econ Lett 54:87–92CrossRefGoogle Scholar
  6. Corneo G, Jeanne O (2001) On the relative-wealth effects and long-run growth. Res Econ 55:349–358CrossRefGoogle Scholar
  7. Duesenberry JS (1949) Income, saving and the theory of consumer behaviour. Havard University Press, CambridgeGoogle Scholar
  8. Dupor B, Liu W-F (2003) Jealousy and equilibrium overconsumption. Am Econ Rev 93(1):423–428CrossRefGoogle Scholar
  9. Ferrer-i-Carbonell A (2005) Income and well-being : an empirical analysis of the comparison income effect. J Publ Econ 89:997–1019CrossRefGoogle Scholar
  10. Fisher WH, Hof FX (2000) Relative consumption, economic growth and taxation. J Econ (Zeitschrift für Nationalökonomie) 73:241–262CrossRefGoogle Scholar
  11. Frijters P, Shields M, Haisken-Deneuw J (2004) Money does matter! evidence from increasing real incomes in east germany following reunification. Am Econ Rev 94:730–741CrossRefGoogle Scholar
  12. Galí J (1994) Keeping up with the Joneses: consumption externalities, portfolio choice, and asset prices. J Money Credit Bank 26(1):1–8CrossRefGoogle Scholar
  13. Glomm G, Ravikumar B (1994) Growth-inequality trade-offs in a model with public sector R-D. Can J Econ 27:485–493CrossRefGoogle Scholar
  14. Gómez M (2006) Optimal consumption taxation in a model of endogenous growth with external habit formation. Econ Lett 93:427–435CrossRefGoogle Scholar
  15. Johansson-Stenman O, Carlsson F, Daruvala D (2002) Measuring hypothetical grandparents, preferences for equality and relative standing. Econ J 112:362–83CrossRefGoogle Scholar
  16. Lau S-HP (1995) Welfare-maximizing vs. growth-maximizing shares of government investment and consumption. Econ Lett 47(3–4):351–359CrossRefGoogle Scholar
  17. Liu W-F, Turnovsky SJ (2005) Consumption externalities, production externalities and long-run macroeconomic efficiency. J Publ Econ 89:1097–1129CrossRefGoogle Scholar
  18. Long NV, Shimomura K (2004) Relative wealth, status seeking and catching-up. J Econ Behav Organ 53:529–542CrossRefGoogle Scholar
  19. Mangasarian OL (1966) Sufficient conditions for the optimal control of nonlinear systems. SIAM J Control 4:139–152CrossRefGoogle Scholar
  20. Marrero GA, Novales A (2005) Growth and welfare: distorting versus non-distorting taxes. J Macroecon 27:403–433CrossRefGoogle Scholar
  21. McBride M (2001) Relative-income effects on subjective well-being in the cross-section. J Econ Behav Organ 45:251–278CrossRefGoogle Scholar
  22. Ng YK (2003) From preferences to happiness: towards a more complete welfare economics. Soc Choice Welfare 20:307–350CrossRefGoogle Scholar
  23. Nguyen-Van P, Pham TKC (2013) Endogenous fiscal policies, environmental quality, and status-seeking behavior. Ecol Econ 88:32–40CrossRefGoogle Scholar
  24. Pham TKC (2005) Economic growth and status-seeking through personal wealth. Eur J Polit Econ 21:407–427CrossRefGoogle Scholar
  25. Rauscher M (1997) Conspicuous consumption, economic growth and taxation. J Econ (Zeitschrift für Nationalökonomie) 66:35–42CrossRefGoogle Scholar
  26. Turnovsky SJ, Monteiro G (2007) Consumption externalities, production externalities and efficient capital accumulation under time non-separable preferences. Eur Econ Rev 51:479–504CrossRefGoogle Scholar
  27. Vendrik M, Woltjer GB (2007) Hapiness and loss aversion: is utility concave or convex in relative income? J Publ Econ 91:1423–1448CrossRefGoogle Scholar
  28. Wendner R (2003) Status, environmental externality, and optimal tax programs. Econ Bull 5:1–10Google Scholar
  29. Wendner R (2010) Growth and keeping up with the Joneses. Macroecon Dyn 14:176–199CrossRefGoogle Scholar

Copyright information

© Springer-Verlag GmbH Austria, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Université de Strasbourg, Université de Lorraine, CNRS, BETAStrasbourgFrance

Personalised recommendations