Paternalism against Veblen: Optimal Taxation and Non-respected Preferences for Social Comparisons

Thomas Aronsson and Olof Johansson-Stenman

American Economic Journal: Economic Policy, 2018, vol. 10, issue 1, 39-76

Abstract: This paper compares optimal nonlinear income tax policies of welfarist and paternalist governments, where the latter does not respect individual preferences regarding relative consumption. Consistent with previous findings, relative consumption concerns typically induce a welfarist government to increase the marginal tax rates to internalize positional externalities. Remarkably, the optimal marginal tax rules are often very similar in the paternalist case, where such externalities are not taken into account. We identify several cases where the marginal tax rules are indeed identical between the governments. Numerical simulations show that marginal and average tax levels and the overall redistribution are often also similar.

JEL-codes: D62 D72 H21 H23 H24 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/pol.20150369
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Citations: View citations in EconPapers (54)

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