Title: Economic growth and status-seeking through personal wealth
Abstract: I investigate the wealth distribution and endogenous fiscal policy in a two-class growth model in which individuals exhibit a desire for social status. The latter is increasing with individual wealth and decreasing with the average wealth of the society. First, I show that status-seeking is crucial in determining the long-run wealth distribution: agents with stronger status motive end up holding a higher level of wealth. Second, higher wealth inequality can be associated with a higher growth if the inequality is due to a stronger incentive of one class of agents to accumulate wealth. Third, the model implies that a higher growth rate may reduce welfare of one class of agents and increase welfare of the other one. Finally, when fiscal policy is determined through a voting mechanism, an increase in the strength of the status motive of the majoritarian class can reduce political-equilibrium growth.
Publication Year: 2004
Publication Date: 2004-12-12
Language: en
Type: article
Indexed In: ['crossref']
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Cited By Count: 49
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