Consumption Taxation, Social Status And Indeterminacy In Models Of Endogenous Growth With Elastic Labor Supply
Source: Hokkaido University
This paper examines the effects of consumption taxation on long run growth in an infinity-lived representative agent model of endogenous growth in which the desire for social status induces private agents to care about others' wealth or consumption levels. The authors also allow for no separable preferences in own consumption, labor supply and social status that may cause indeterminacy of equilibrium. This analysis shows that consumption taxation generally rises (reduces) a long-run growth rate when the balanced growth path is indeterminate (determinate) in the models of wealth-induced social status and consumption externalities.