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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

Campanale, Claudio
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 Macroeconomics – de Gruyter

Published: Jan 26, 2018

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