Consumption, Wealth, Frugality, and Economic Growth

In this paper we provide a quantitative analysis of how wealth may affect economic growth. In the economy, the utility of every individual depends on both consumption and wealth. Exploring a class of specific utility functions in which wealth has a weakening effect on the marginal utility of consumption, we find a closed -form solution of steady-state consumption, capital stock, savings rate, and convergence rate and obtain several novel results of wealth effects on economic growth. We also demonstrate that the new models can be calibrated to fit well with empirical observation.