Luxury and Wealth Accumulation.

This paper develops a model of luxury goods by incorporating weakly non-separable, recursive preferences. In a two-good framework, a quasi-luxury is de ned as a good whose marginal rate of substitution is increasing in wealth. Under certain conditions, it is identical to a luxury good. Consumers wait for quasi-luxuries more (less) patiently than for quasi-necessities when they expect to be happier (unhappier) in the future. The preference for quasi-luxuries promotes optimal wealth accumulation and hence growth. In a two-country economy, the less patient country with stronger quasi-luxury preferences can be wealthier than the more patient country.