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Luxury consumption, precautionary savings and wealth inequality

Luxury consumption, precautionary savings and wealth inequality AbstractMost macroeconomic models are based on the assumption of a single homogeneous consumption good. In the present paper we consider a model with two goods: a basic good and a luxury good. We then apply this assumption to a standard general equilibrium heterogeneous agent model. We find a substantial reduction in precautionary savings compared to a standard model. The effect on wealth inequality turns out to be ambiguous and to depend on the size of the assumed earnings risk. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The B.E. Journal of Macroeconomics de Gruyter

Luxury consumption, precautionary savings and wealth inequality

The B.E. Journal of Macroeconomics , Volume 18 (1): 1 – Jan 26, 2018

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Publisher
de Gruyter
Copyright
©2018 Walter de Gruyter GmbH, Berlin/Boston
ISSN
1935-1690
eISSN
1935-1690
DOI
10.1515/bejm-2015-0196
Publisher site
See Article on Publisher Site

Abstract

AbstractMost macroeconomic models are based on the assumption of a single homogeneous consumption good. In the present paper we consider a model with two goods: a basic good and a luxury good. We then apply this assumption to a standard general equilibrium heterogeneous agent model. We find a substantial reduction in precautionary savings compared to a standard model. The effect on wealth inequality turns out to be ambiguous and to depend on the size of the assumed earnings risk.

Journal

The B.E. Journal of Macroeconomicsde Gruyter

Published: Jan 26, 2018

References