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ANTICIPATED FUTURE CONSUMPTION IN AN ENDOGENOUS GROWTH MODEL

Published online by Cambridge University Press:  11 November 2020

Manuel A. Gómez  and
Goncalo Monteiro
Manuel A. Gómez*
Affiliation:
Universidade da Coruña
Goncalo Monteiro
Affiliation:
Georgia State University
*
Address correspondence to: Manuel A. Gómez, Department of Economics, University of A Coruña, Campus de Elviña, 15071 A Coruña, Spain. e-mail: mago@udc.es. Phone: +34 881012439. Fax: +34 981167070.
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Abstract

We devise an endogenous growth model in which agents’ utility depends not only on current consumption but also on the pleasure of anticipated future consumption. We consider the case in which agents derive satisfaction from their own anticipatory feelings—inward-looking or internal anticipation—and the case in which agents derive utility from anticipation of other people’s future consumption—outward-looking or external anticipation. We characterize the effects of introducing a forward-looking consumption reference on the dynamics of the economy. Whereas the inward-looking economy features transitional dynamics, the outward-looking economy does not. The distortions caused by the externality in the economy with external habits can be corrected by subsidizing income at a time-varying rate or by means of a tax on consumption at a decreasing rate. We contrast the equilibrium dynamics of our specification to the more standard specification of the habit formation consumption reference point. Numerical simulations supplement the theoretical analysis.

Keywords

Anticipated ConsumptionEndogenous GrowthOptimal Policy

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Type
Articles
Information
Macroeconomic Dynamics , Volume 26 , Issue 5 , July 2022 , pp. 1202 - 1238
Copyright
© Cambridge University Press 2020

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Footnotes

Detailed comments of an anonymous referee are gratefully acknowledged. Manuel A. Gómez gratefully acknowledges financial support by the Spanish Ministerio de Economía, Industria y Competitividad, and the European Regional Development Fund (ERDF) under Grant No. ECO2017-85701-P.

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