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How Much Do We Care About Absolute Versus Relative Income and Consumption?

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Author Info
Alpizar, Francisco (Department of Economics, School of Economics and Commercial Law, Göteborg University)
Carlsson, Fredrik () (Department of Economics, School of Economics and Commercial Law, Göteborg University)
Johansson-Stenman, Olof (Department of Economics, School of Economics and Commercial Law, Göteborg University)

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Abstract

We find, using survey-experimental methods, that most individuals are concerned with both relative income and relative consumption of particular goods. The degree of concern varies in the expected direction depending on the properties of the good. However, contrary to what has been suggested in the previous literature, we find that relative consumption is also important for vacation and insurance, which are typically seen as non-positional goods. Further, absolute consumption is also found to be important for cars and housing, which are widely regarded as highly positional. Implications for Pareto-efficient taxation are illustrated using the results from the experiment.

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File URL: http://hdl.handle.net/2077/2676
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Publisher Info
Paper provided by Göteborg University, Department of Economics in its series Working Papers in Economics with number 63.

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Length: 29 pages
Date of creation: 14 Nov 2001
Date of revision:
Publication status: Published in Journal of Economic Behavior and Organization, 2005, pages 405-421.
Handle: RePEc:hhs:gunwpe:0063

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Postal: Department of Economics, School of Business, Economics and Law, Göteborg University Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Related research
Keywords: status; relative income; optimal taxes; experiments;

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Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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