POSITIONAL PREFERENCES IN TIME AND SPACE: IMPLICATIONS FOR OPTIMAL INCOME TAXATION

Thomas Aronsson () and Olof Johansson-Stenman ()
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Thomas Aronsson: Department of Economics, Umeå University, Postal: 901 87 Umeå, Sweden

No 426, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: This paper concerns optimal nonlinear taxation in an OLG model with two ability-types, where people care about their own consumption relative to (i) other people’s current consumption, (ii) own past consumption, and (iii) other people’s past consumption. We show that intertemporal consumption comparisons affect the marginal income tax structure in the same qualitative way as comparisons based on other people’s current consumption. Based on available empirical estimates, comparisons with other people’s current and previous consumption tend to substantially increase the optimal marginal labor income tax rates, while they may either increase or decrease the optimal marginal capital income tax rates.

Keywords: Optimal income taxation; asymmetric information; relative consumption; status; habit formation; positional goods (search for similar items in EconPapers)
JEL-codes: D62 H21 H23 H41 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2010-01-22
New Economics Papers: this item is included in nep-dge and nep-ltv
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Citations: View citations in EconPapers (1)

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Working Paper: POSITIONAL PREFERENCES IN TIME AND SPACE: IMPLICATIONS FOR OPTIMAL INCOME TAXATION (2010)
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