SSE/EFI Working Paper Series in Economics and Finance
Catching up with the Keynesians
() and Harald Uhlig
Abstract: This paper examines the role for tax policies in
productivity-shock driven economies with "catching-up-with -the-Joneses"
utility functions. The optimal tax policy is shown to affect the economy
counter-cyclically via procyclical taxes, i.e., "cooling down" the economy
with higher taxes when it is "overheating" in booms and "stimulating" the
economy with lower taxes in recessions to keep consumption up. Thus, models
with catching-up-with-the-Joneses utility functions call for traditional
Keynesian demand management policies. Parameter values from Campbell and
Cochrane (1995) are also used to illustrate that the necessary labor taxes
can be very high, in the order of 50 percent. However, Campbell and
Cochrane's nonlinear version of the benchmark level in the
catching-up-with-the-Joneses preferences has the implication that
consumption bunching can be welfare enhancing.
Keywords: Catching-up-with-the-Joneses preferences; fiscal policy; taxation; (follow links to similar papers)
JEL-Codes: E21; E62; E63; (follow links to similar papers)
29 pages, September 28, 1998
Before downloading any of the electronic versions below
you should read our statement on
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
hastef0259.pdf.zip (zipped) (135kB)
hastef0259.ps.zip PKZipped PostScript (77kB)
hastef0259.ps PostScript file (263kB)
- This paper is forthcoming as:
Ljungqvist, Lars and Harald Uhlig, 'Tax Policy and Aggregate Demand Management under Catching up with the Joneses', American Economic Review.
Questions (including download problems) about the papers in this series should be directed to Helena Lundin ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Design by Joachim Ekebom