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Conspicuous Leisure: Optimal Income Taxation When Both Relative Consumption and Relative Leisure Matter

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  • Thomas Aronsson
  • Olof Johansson-Stenman

Abstract

Previous studies on public policy under relative consumption concerns have ignored the role of leisure comparisons. This paper considers a two-type optimal nonlinear income tax model where people care both about their relative consumption and their relative leisure. Increased consumption positionality typically implies higher marginal income tax rates for both the high-ability and the low-ability type, whereas leisure positionality has an offsetting role. However, this offsetting role is not symmetric; concern about relative leisure implies a progressive income tax component, i.e., a component that is larger for the high-ability than for the low-ability type. Moreover, leisure positionality does not modify the policy rule for public good provision when the income tax is optimally chosen.

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File URL: http://hdl.handle.net/10.1111/j.1467-9442.2012.01738.x
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Bibliographic Info

Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 115 (2013)
Issue (Month): 1 (01)
Pages: 155-175

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Handle: RePEc:bla:scandj:v:115:y:2013:i:1:p:155-175

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Web page: http://onlinelibrary.wiley.com/journal/10.1111/(ISSN)1467-9442

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Citations

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Cited by:
  1. Paul Eckerstorfer, 2011. "Relative Consumption Concerns and the Optimal Tax Mix," Economics working papers 2011-14, Department of Economics, Johannes Kepler University Linz, Austria.
  2. Aronsson, Thomas & Johansson-Stenman, Olof, 2011. "State-Variable Public Goods When Relative Consumption Matters: A Dynamic Optimal Taxation Approach," UmeÃ¥ Economic Studies 828, Umeå University, Department of Economics.
  3. Goerke, Laszlo & Pannenberg, Markus, 2013. "Keeping up with the Joneses: Income Comparisons and Labour Supply," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80033, Verein für Socialpolitik / German Economic Association.
  4. Aronsson, Thomas & Johansson-Stenman, Olof, 2013. "Publicly Provided Private Goods and Optimal Taxation when Consumers Have Positional Preferences," Working Papers in Economics 558, University of Gothenburg, Department of Economics.

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