Optimal taxation under status consumption and preferences for equality

Thomas Aronsson, Tomas Sjögren and Sonal Yadav

Oxford Economic Papers, 2025, vol. 77, issue 2, 584-595

Abstract: This article analyses optimal taxation when (1) a fraction of people has positional preferences, and (2) concerns for relative consumption and preferences for equality are operative simultaneously. We show that incentive compatibility motivates a regressive marginal tax structure, which in the end implies that people with positional preferences are taxed at a lower marginal rate than people without such preferences. A counteracting mechanism arises if those who are not concerned with their relative consumption have preferences for income-equality, even if people with positional preferences should still be taxed at a lower marginal rate than motivated by their contributions to externalities.

Keywords: optimal taxation; relative consumption; equality (search for similar items in EconPapers)
JEL-codes: D60 D62 D90 H21 (search for similar items in EconPapers)
Date: 2025
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