In this paper I investigate the nexus between life time utility (life satisfaction) and income predicted by the standard model of endogenous economic growth under different behavioral assumptions. The solution rationalizes why the empirical association between income and life satisfaction is...

Data quality in the Penn World Tables varies systematically across countries that have different growth rates and at different stages of economic development, thus introducing measurement error correlated with variables of economic interest. We explore the seriousness of this problem with three...

GDP growth has increasingly been led by consumption. However, consumption-led expansions tend to be significantly weaker than when growth is driven by other components of aggregate demand, often because of the build-up of imbalances. We show that while factors such as credit growth and rising...

The Keynesian intuition that increasing consumption can stimulate investment is verified empirically using US macroeconomic data. The investment multiplier is hypothesized to increase monotonically with the propensity to consume. However, the functional relationship is not that of the Keynesian...

This paper investigates the channels through which the middle class may matter for consumption growth and development. Determinants of the size and the growth of the middle class are also examined. Using several different middle class measures and a panel of 72 developing countries spanning the...

We study the impact of a minimum consumption requirement on the rate of economic growth and the evolution of wealth distribution. The requirement introduces a positive dependence between the intertemporal elasticity of substitution and household wealth. This dependence implies a transition phase...

This paper uses the standard one-sector neoclassical growth model to investigate why China’s consumption has been low and investment high. It finds that the low cost of capital has been quantitatively an important factor. Theory predicts that the price of capital may have been significantly...