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American Economic Review: Vol. 90 No. 3 (June 2000)
AER Volume. 90, Issue 3 | 
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Tax Policy and Aggregate Demand Management under Catching Up with the Joneses
Article Citation
Ljungqvist, Lars, and
Harald Uhlig. 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses."
American Economic Review,
90(3): 356-366.
DOI: 10.1257/aer.90.3.356
DOI: 10.1257/aer.90.3.356
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 countercyclically 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 but for rather unorthodox reasons.
Article Full-Text Access
Full-text Article
Authors
Ljungqvist, Lars (Stockholm School of Econ and CEPR)
Uhlig, Harald (Tilburg U and CEPR)
Uhlig, Harald (Tilburg U and CEPR)
JEL Classifications
E62: Fiscal Policy
E21: Macroeconomics: Consumption; Saving; Wealth
E21: Macroeconomics: Consumption; Saving; Wealth
