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Consumption taxation, social status and indeterminacy in models of endogenous growth with elastic labor supply

Jun-ichi Itaya and Naoshige Kanamori
Journal of Economics
Vol. 100, No. 2 (June 2010), pp. 141-163
Published by: Springer
Stable URL: http://www.jstor.org/stable/41795684
Page Count: 23
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Consumption taxation, social status and indeterminacy in models of endogenous growth with elastic labor supply
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Abstract

In this paper, we examine the effects of consumption taxation on long-run growth in an infinitely lived representative-agent model of endogenous growth with endogenous labor supply in which the desire for social status induces private agents to care about others' wealth or consumption levels. This analysis shows that the increase in consumption taxation raises (reduces) the long-run growth rate when the equilibrium path is locally indeterminate (determinate), provided the desire for social status is not too strong in the relative wealth model. By contrast, in the consumption externalities model, the same result holds, if the Frisch labor supply and labor demand curves have the 'normal' slopes at their intersection point, while the result is reversed if these two curves have the 'wrong' slopes.

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