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THE WEALTH DISTRIBUTION AND THE DEMAND FOR STATUS

Published online by Cambridge University Press:  01 May 2009

Yulei Luo  and
Eric R. Young
Yulei Luo
Affiliation:
University of Hong Kong
Eric R. Young*
Affiliation:
University of Virginia
*
Address correspondence to: Dr. Eric R. Young, Department of Economics, University of Virginia, Charlottesville, VA 22904, USA; e-mail: ey2d@virginia.edu.
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Abstract

Standard economic theories of asset markets assume that assets are valued entirely for the consumption streams they can finance. This paper examines the introduction of the demand for status (as a function of wealth) into a model of uninsurable idiosyncratic risk—the “spirit of capitalism” (“soc”) assumption. We find that soc preferences lead to less inequality in wealth; placing wealth into the utility function leads to a shrinking wealth distribution. The drop in wealth concentration is smaller if the utility function implies status is a luxury good, but no parametrization leads to higher wealth Gini coefficients than the benchmark case. We then consider the consequences of revenue-neutral tax reforms with and without soc preferences, finding that they make little difference for this policy experiment.

Keywords

Wealth DistributionSpirit of CapitalismPreference for Status
Type
Articles
Information
Macroeconomic Dynamics , Volume 13 , Supplement S1 , May 2009 , pp. 1 - 30
Copyright
Copyright © Cambridge University Press 2009

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