Substitution Effects in Intertemporal Problems
Quaderni - Working Paper DSE N° 1147
26 Pages Posted: 5 Jun 2020
Date Written: May 5, 2020
We consider a broad class of intertemporal economic problems and we characterize the short and long-run response of the demand for a good to a permanent increase in its market price.
Depending on the interplay between self-productivity and time discounting, we show that dynamic substitution effects can generate price elasticities of opposite sign in the short and in the long run.
Keywords: Intertemporal substitution, price elasticity, tax reforms
JEL Classification: D11, D91, I00
Suggested Citation: Suggested Citation