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

Thomas Aronsson () and Olof Johansson-Stenman ()
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Thomas Aronsson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, http://www.econ.umu.se

No 945, Umeå Economic Studies from Umeå University, Department of Economics

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 under welfarism typically imply higher marginal income tax rates. Remarkably, the optimal marginal tax rules are very similar in the paternalist case. For example, if relative consumption concerns are based on mean value comparisons and all consumers are equally positional, then the first-best tax rules are identical between the governments. Extensive numerical simulations supplement the theoretical results, and make it possible to compare also tax levels and overall redistribution.

Keywords: nonlinear taxation; redistribution; status; positional goods (search for similar items in EconPapers)
JEL-codes: D62 H21 H23 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2017-02-10
New Economics Papers: this item is included in nep-ltv
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Paternalism against Veblen: Optimal Taxation and Non-Respected Preferences for Social Comparisons (2014)
Working Paper: Paternalism against Veblen: Optimal Taxation and Non-Respected Preferences for Social Comparisons (2014)
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