Title

Marshallian recursive preferences and growth

Abstract

Although Alfred Marshall adhered to the classical doctrine of impatience, he thought that the act of saving might itself confer utility. We model this by making the discount factor a function of savings. In addition to providing an intuitive rationale for increasing marginal impatience, "Marshallian time preference" has interesting implications for macroeconomics. Marshallian preferences lower interest rates, by stimulating savings. Paradoxically, it is possible for a tax cut to lower interest rates in a Marshallian economy. In a growth model with Marshallian consumers, a permanent increase in government expenditures causes "super-crowding-out" of consumption and reduces the steady-state capital stock. © 2002 Elsevier Science B.V. All rights reserved.

Publication Title

Journal of Economic Behavior and Organization

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