This paper advances the hypothesis that the intensity of status preferences depends negatively on the average wealth of society (endogenous dynamic status effect), in accordance with empirical evidence. Our theory replicates the contradictory historical facts of an increasing saving rate along...

In light of the increasing inequality in many countries, this paper analyzes redistributive charitable giving from the rich to the poor in a model of optimal nonlinear income taxation. Our framework integrates public and private redistribution, the warm glow of giving and stigma of receiving...

This paper analyzes the effects of non-atmospheric consumption externalities on optimal commodity taxation and on the social cost and optimal levels of public good provision. A negative consumption externality, by lowering the social cost of public good provision, may require the second-best...

This paper investigates household decisions when individual utility depends on a consumption reference level. The desire to “keep up with the Joneses'' represents one such example. The prior literature shows that, in a Ramsey model, consumption externalities have no impact on steady state...

This paper investigates the effects of ("keeping up with the Joneses" and "learning-by-investing") externalities, when labor productivity decreases with age. Within the framework of a continuous time overlapping generations model, the effects of the consumption externality on the propensity to...

Most studies of the optimal provision of public goods or the excess burden from taxation assume that individual utility is independent of other individuals' consumption. This paper investigates public good provision and excess burden in a model that allows for interdependence in consumption in...

The standard neoclassical growth model with Cobb-Douglas production predicts a monotonically declining saving rate, when reasonably calibrated. Ample empirical evidence, however, shows that the transition path of a country’s saving rate exhibits a rising or non-monotonic pattern. In important...