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Relative Consumption Concerns and the Optimal Tax Mix

Paul Eckerstorfer ()

No 2011-12, NRN working papers from The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria

Abstract: This articles studies the optimal tax mix (taxes on income and commodities) under asymmetric information in a two-type model, when individuals make relative consumption comparisons. The model includes both positional and nonpositional goods, taking into account the fact that relative concerns matter for some but not for all commodities. We find that in general the whole tax system is affected by the externalities caused by the consumption of positional goods, notably also the taxes on income and on a non-positional good. The tax rates on positional goods are higher than in the absence of status effects, reflecting their Pigouvian role. The sign of the Pigouvian part in the income tax schedule is ambiguous and depends crucially on whether status goods are complements or substitutes to leisure.

Keywords: Optimal Taxation; Externalities; Relative Consumption (search for similar items in EconPapers)
JEL-codes: D62 H21 H23 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2011-10
New Economics Papers: this item is included in nep-acc, nep-pbe and nep-pub
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Related works:
Journal Article: Relative Consumption Concerns and the Optimal Tax Mix (2014) Downloads
Working Paper: Relative Consumption Concerns and the Optimal Tax Mix (2011) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:jku:nrnwps:2011_12

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