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A Note on Optimal Taxation under Status Consumption and Preferences for Equality

Thomas Aronsson (), Tomas Sjögren and Sonal Yadav ()
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Thomas Aronsson: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, https://www.umu.se/handelshogskolan
Sonal Yadav: Department of Economics, Umeå University, Postal: Department of Economics, Umeå University, S 901 87 Umeå, Sweden, https://www.umu.se/handelshogskolan

No 1009, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: This note analyzes optimal taxation when (i) a fraction of people has positional preferences, and (ii) 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)
Pages: 14 pages
Date: 2022-09-13
New Economics Papers: this item is included in nep-pbe, nep-pub and nep-res
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