The Effects of Luxury Consumption on Economic Growth: An Approach Based on Non-homothetic Preferences

By Anaïs Carlin

English

The purpose of this paper is to study the effect of luxury consumption on economic growth. However, before investigating the relationship between economic growth and luxury consumption from a demand perspective, it is necessary to return to the determinants of luxury consumption. Therefore, we will present some models that go beyond the concept of homotheticity and link individual preferences and luxury consumption. On this point, we will particularly focus on the largely unknown contributions made by Nicholas Georgescu-Roegen to consumer choice theory. These insights will then allow a study of the macroeconomic relationships between consumption of luxury, innovation, and growth in the presence of non-homothetic preferences. We will see how the use of hierarchical preference structures or the definition of demand elasticities specific to luxury goods enable us to study luxury consumption through standard endogenous growth models or dynamic optimization. Finally, we will examine the relevance of these models.
JEL Codes: O40, B41, E21, E25

Keywords

  • luxuries
  • consumption
  • income inequality
  • innovation
  • non-homothetic preferences
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