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Abstract

This paper derives necessary and sufficient conditions under which positional preferences do not induce inter-temporal distortions. When labor supply is exogenous, positional preferences for consumption have been shown to be non-distortionary for a class of models. However, it has not been explored whether the same holds when households also exhibit positional preferences for wealth. The analysis identifies a restricted homogeneity-property which, when not satisfied, induces positional preferences to be distortionary, despite inelastic labor supply. Without positional preferences for wealth, a constant marginal rate of substitution-property is necessary and sufficient for a consumption positionality to be non-distortionary. Once a household also has positional preferences for wealth in addition, the consumption positionality almost always becomes distortionary, as the implied effects of the positional concerns induce opposing effects on a household-s saving behavior. Under a constant marginal rates of substitution-property, these opposing effects exactly offset each other.



Item Type: MPRA Paper -

Original Title: Do positional preferences for wealth and consumption cause inter-temporal distortions?-

English Title: Do positional preferences for wealth and consumption cause inter-temporal distortions?-

Language: English-

Keywords: Status, keeping up with the Joneses, positional preferences, distortion, endogenous growth, $Ak$ model-

Subjects: D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and SavingO - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General-





Author: Wendner, Ronald

Source: https://mpra.ub.uni-muenchen.de/64086/







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