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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
Article
  • 54 Downloads

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.

Keywords

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 

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Copyright information

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

Authors and Affiliations

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

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