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GROWTH, PENSIONS, AND THE AGING JONESES

Published online by Cambridge University Press:  05 January 2011

Walter H. Fisher  and
Ben J. Heijdra
Walter H. Fisher*
Affiliation:
Institute for Advanced Studies
Ben J. Heijdra
Affiliation:
University of Groningen Institute for Advanced Studies Netspar and CESifo
*
Address correspondence to: Walter H. Fisher, Institute for Advanced Studies, Department of Economics and Finance, Stumpergasse 56, A-1060 Vienna, Austria; e-mail: [email protected].
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Abstract

We incorporate keeping-up-with-the-Joneses (KUJ) preferences into the Blanchard–Yaari framework and develop a model of balanced growth. In this context we investigate status preference, demographic shocks, and pension policy. We find that a higher degree of KUJ lowers economic growth, whereas, in contrast, a decrease in the fertility and mortality rates increase it. In the second part of the paper we extend the model by incorporating a pay-as-you-go (PAYG) pension system with a statutory retirement date. The latter implies that the growth rate is higher under PAYG. We also consider the implications of pension reform under both defined benefit and defined contribution schemes.

Keywords

Relative ConsumptionOverlapping GenerationsEndogenous GrowthPension Reform
Type
Articles
Information
Macroeconomic Dynamics , Volume 16 , Issue 1 , February 2012 , pp. 35 - 60
Copyright
Copyright © Cambridge University Press 2010

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