Public policy, dynamic status preferences, and wealth inequality

Abstract

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.

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

“…As in Dioikitopoulos et al (2017Dioikitopoulos et al ( , 2018, the DOP of a given individual is not exogenous but depends on the level of development of a country, captured by the per capita aggregate stock of capital. Over time, as individuals become wealthier and the per capita aggregate stock of capital increases, the DOP increases for all types of individuals and they become more positional with respect to healthy food.…”

“…Our work also builds upon the long standing literature on conspicuous consumption. 1 Specifically we extend the endogenous dynamic status preference model by Dioikitopoulos et al (2017Dioikitopoulos et al ( , 2018. We introduce two goods (low and high-calorie goods) and two types of individuals (poor and rich) in the model to describe individual food consumption behavior.…”

Fiscal rules in a monetary economy: Implications for growth and welfare

“…There is a continuum of identical firms with a unit mass in each location. They are perfectly competitive profit maximizers that produce output, , by using private capital, , labor (i.e., the size of period‐ young agents), , and government services to private producers, , as in Barro () and more recently, Dioikitopoulos, Turnovsky, and Wendner () and Le Van, Nguyen‐Van, Barbier‐Gauchard, and Le (). Specifically, the aggregate production function in each location is given by where and .…”

The importance of considering optimal government policy when social norms matter for the private provision of public goods

“…Others, within the immense literature on the evolutionary roots of human altruism and prosocial behavior, have tried to model the emergence of social norms as evolutionary stable, fitness‐enhancing strategies (e.g., Bicchieri, Duffy, & Tolle, ; Bowles & Gintis, ). Other dynamic approaches include, for example, status‐seeking Dioikitopoulos, Turnovsky, and Wendner ().…”