Over the last three decades, average income for the bottom half of the US distribution increased by 8% while their average saving rate decreased by eight percentage points. Over the same period the US experienced a substantial increase in inequality and a continuous decrease in the aggregate...

We propose an overlapping generations economy where households care about relative consumption, the difference between their consumption and the consumption of their reference group. An individual's consumption is driven by the comparison of his lifetime income and the lifetime income of his...