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Asymmetric and non-atmospheric consumption externalities, and efficient consumption taxation

Paul Eckerstorfer () and Ron Wendner ()

Journal of Public Economics, 2013, vol. 106, issue C, 42-56

Abstract: We analyze the effects of a generalized class of negative consumption externalities (asymmetric and non-atmospheric) on the structure of efficient commodity tax programs. Households are not only concerned about consumption reference levels — that is, they gain utility from “keeping up with the Joneses” — but they also exhibit altruism. Two sets of efficient tax regimes are compared, based, on a welfarist- and a non-welfarist optimality criterion, respectively. Altruism turns out not to be at odds with the consumption externalities. Rather, altruism implicates a bound on efficient utility allocations. A non-welfarist government tolerates less inequality than a welfarist one. In the welfarist (non-welfarist) case, first-best personalized commodity tax rates respond highly sensitively (barely) to whether or not a consumption externality is asymmetric or non-atmospheric. If personalized commodity tax rates are not available (second-best case), the tax rate on a non-positional good is typically different from zero for corrective reasons. For plausible functional forms and parameter values, numerical simulations suggest that second-best tax rates are rather insensitive with respect to both the optimality criterion and the “nature” of the consumption externality.

Keywords: Consumption externality; Keeping up with the Joneses; Efficient commodity taxation; Genuine altruism; Non-welfarist government (search for similar items in EconPapers)
JEL-codes: D62 H21 H23 (search for similar items in EconPapers)
Date: 2013
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Related works:
Working Paper: Asymmetric and Non-atmospheric Consumption Externalities, and Efficient Consumption Taxation (2013) Downloads
Working Paper: Asymmetric and Non-atmospheric Consumption Externalities, and Efficient Consumption Taxation (2013) Downloads
Working Paper: Asymmetric and Non-atmospheric Consumption Externalities, and Efficient Consumption Taxation (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:106:y:2013:i:c:p:42-56

DOI: 10.1016/j.jpubeco.2013.07.003

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