Saving and growth with habit formation

Citation
Cd. Carroll et al., Saving and growth with habit formation, AM ECON REV, 90(3), 2000, pp. 341-355
Citations number
49
Language
INGLESE
art.tipo
Article
Categorie Soggetti
Economics
Journal title
AMERICAN ECONOMIC REVIEW
ISSN journal
0002-8282 → ACNP
Volume
90
Issue
3
Year of publication
2000
Pages
341 - 355
Database
ISI
SICI code
0002-8282(200006)90:3<341:SAGWHF>2.0.ZU;2-5
Abstract
Saving and growth are strongly positively correlated across countries. Rece nt empirical evidence suggests that this correlation holds largely because high growth leads to high saving, not the other way around. This evidence i s difficult to reconcile with standard growth models, since forward-looking consumers with standard utility should save less in a fast-growing economy because they know they will be richer in the future than they are today. W e show that if utility depends partly on how consumption compares to a "hab it stock" determined by past consumption, an otherwise-standard growth mode l can imply that increases in growth can cause increased saving. (JEL D91, E21, 040).