Notes on Habit Formation and Socially Optimal Growth

The interaction between habit formation and pollution-type ex- ternalities modifies the social optimum through discount effects and elasticity effects. If the substitution elasticity does not exceed unity, both effects reduce optimal consumption and capital in the long run, and the optimal capital-income tax increases with the relative impor- tance of habits. Similar results hold with high elasticity if the relative importance of habits is sufficiently high.

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Year of publication:	2006-02
Authors:	Valente, Simone
Institutions:	CER-ETH Center of Economic Research, Department of Management, Technology and Economics (D-MTEC)
Subject:	externalities \| habit formation \| pollution \| optimal growth

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Extent:	application/pdf
Series:	CER-ETH Economics working paper series.
Type of publication:	Book / Working Paper
Language:	English
Notes:	Number 06/48 13 pages
Classification:	D62 - Externalities ; D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving ; E21 - Consumption; Saving
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005800907