Redistributive taxation with heterogeneous relative consumption concerns
AbstractThis paper studies the impact of redistributive income taxation in a society where only some individuals are motivated by relative consumption concerns. Introducing this heterogeneity raises theoretical challenges since (i) earned income becomes an imperfect indicator of underlying ability and (ii) relative concerns may be inadmissable in the social objective. A new behavioural model is developed in which only relatively-concerned individuals choose work effort strategically. Linear tax/transfer systems schemes are then characterized and simulated for a series of welfarist and non-welfarist social objectives, and for different degrees of preference heterogeneity. A key result is that a government which understands the extent of relative consumption concerns-but places no social weight on individuals with such preferences-nevertheless sets a significantly more progressive tax system than a government which ignores relative consumption motivations altogether.
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Bibliographic InfoArticle provided by Canadian Economics Association in its journal Canadian Journal of Economics.
Volume (Year): 45 (2012)
Issue (Month): 1 (February)
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Postal: Canadian Economics Association Prof. Steven Ambler, Secretary-Treasurer c/o Olivier Lebert, CEA/CJE/CPP Office C.P. 35006, 1221 Fleury Est Montréal, Québec, Canada H2C 3K4
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Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
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- Laszlo Goerke, 2013.
"Relative Consumption and Tax Evasion,"
CESifo Working Paper Series
4077, CESifo Group Munich.
- Inga Hillesheim & Laszlo Goerke, 2013.
"Relative Consumption, Working Time, and Trade Unions,"
IAAEU Discussion Papers
201310, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
- Laszlo Goerke & Inga Hillesheim, 2013. "Relative Consumption, Working Time, and Trade Unions," CESifo Working Paper Series 4318, CESifo Group Munich.
- Goerke, Laszlo & Hillesheim, Inga, 2013. "Relative Consumption, Working Time, and Trade Unions," IZA Discussion Papers 7471, Institute for the Study of Labor (IZA).
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