Dynamic Status Effects, Savings, and Income Inequality

Dioikitopoulos, Evangelos V.; Turnovsky, Stephen J.; Wendner, Ronald

doi:10.1111/iere.12426

Cited by 15 publications

(16 citation statements)

References 69 publications

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“…This mechanism is developed in detail in an earlier paper by Dioikitopoulos, Turnovsky, and Wendner (2017). We extend that paper in two important directions.…”

mentioning

confidence: 70%

“…Second, positional preferences introduce a dynamic status effect. As described in more detail in Dioikitopoulos et al (2017), iḟk > 0, under Assumption 1.2, the status effect causes the optimal consumption growth rate to decline as a country develops. The intertemporal consumption decision is affected by the degree to which people evaluate their social status over time.…”

Section: Household Optimizationmentioning

confidence: 99%

“…We keep this subsection short as it draws on García-Peñalosa and Turnovsky (2008, pp. 463ff) as well as Dioikitopoulos et al (2017). We first determine the equilibrium dynamics of individual i's share of total capital, k i (t).…”

Section: The Dynamics Of Inequalitymentioning

confidence: 99%

“…To illustrate how differences in status preferences between countries can account for the differential dynamics of wealth inequality, as observed in contemporary data (see Dioikitopoulos et al, 2017), we consider an increase in the income tax rate (associated with a rise in productive government spending). In doing so, differences in status preferences are reflected in different values of E(c, k) ≤ 0, viewed as proxying cultural differences between countries.…”

Section: The Effect Of Taxation and Productive Government Spending Onmentioning

confidence: 99%

“…Consequently, s 0 jumps up by less or, given the dynamic status effect is strong enough, declines. A thorough phase diagram analysis, discussing a similar case, is provided by Dioikitopoulos et al (2017).…”

Section: A3 Proof Of Propositionmentioning

confidence: 99%

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Public policy, dynamic status preferences, and wealth inequality

Dioikitopoulos

Turnovsky

Wendner

2018

J Public Economic Theory

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This paper studies the effect of productive government spending (taxation) on aggregate savings behavior and its consequences for the dynamics of wealth inequality, taking into consideration key behavioral changes that occur during the process of economic development. Substantial empirical evidence suggests that during this process agents' preferences toward status (positional consumption) evolves according to the average wealth of the society. The sources of wealth include private capital and productive public capital, the latter financed by a distortionary income tax. This dynamic status effect impacts peoples' responses to tax policy in ways which contrast with those of the standard neoclassical model. Specifically, we find that in response to an increase in the income tax, in economies with a strong (weak) enough dynamic status effect, savings and inequality increase (decrease). Incorporating the behavioral changes to fiscal policy expands the set of mechanisms available to explain the observed variations of savings and wealth distribution dynamics that cannot be attributed to technological or other structural factors.

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“…This mechanism is developed in detail in an earlier paper by Dioikitopoulos, Turnovsky, and Wendner (2017). We extend that paper in two important directions.…”

mentioning

confidence: 70%

Section: Household Optimizationmentioning

confidence: 99%

Section: The Dynamics Of Inequalitymentioning

confidence: 99%

Section: The Effect Of Taxation and Productive Government Spending Onmentioning

confidence: 99%

Section: A3 Proof Of Propositionmentioning

confidence: 99%

See 3 more Smart Citations

Public policy, dynamic status preferences, and wealth inequality

Dioikitopoulos

Turnovsky

Wendner

2018

J Public Economic Theory

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We are what we eat: Obesity, income, and social comparisons

Mathieu-Bolh

Wendner

2020

European Economic Review

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The empirical evidence of a non-monotone relation between income and obesity is not well explained.We build a theoretical model combining income inequality and social comparisons to explain the link between income and obesity and study tax policy implications for fighting obesity. We assume that differences in food consumption patterns between poor and wealthy households partly reflect positionality, which is the concern for social status. Our key assumption is that positionality for low-calorie food consumption is positively related to a country's wealth. In this framework, body weight outcomes reflect competing income and positionality effects, yielding the following results. We explain the link between average obesity rates, and standards of living and suggest the existence of a Kuznets curve for obesity.For cross sections of the population, we explain the observed correlation between income and obesity, which is positive in poor countries, and negative rich countries. We find that increasing the relative cost of high-calorie food is less effective at decreasing the relative weight of poor individuals in rich countries than in poor countries.

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