Notes on Habit Formation and Socially Optimal Growth

The interaction between habit formation and pollution-type ex- ternalities modifies the social optimum through discount effects and elasticity effects. If the substitution elasticity does not exceed unity, both effects reduce optimal consumption and capital in the long run, and the optimal capital-income tax increases with the relative impor- tance of habits. Similar results hold with high elasticity if the relative importance of habits is sufficiently high.

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Year of publication:	2006
Authors:	Valente, Simone
Publisher:	Zurich : ETH Zurich, CER-ETH - Center of Economic Research
Subject:	Konsumentenverhalten \| Lebenszyklus \| Optimales Wachstum \| Umweltbelastung \| Externer Effekt \| externalities \| habit formation \| pollution \| optimal growth

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Series:	Economics Working Paper Series ; 06/48
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Working Paper
Language:	English
Other identifiers:	10.3929/ethz-a-005237203 [DOI] 508799651 [GVK] hdl:10419/171492 [Handle] RePEc:eth:wpswif:06-48 [RePEc]
Classification:	D62 - Externalities ; D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving ; E21 - Consumption; Saving
Source:	EconStor

Persistent link: https://www.econbiz.de/10011753113