Aronsson, Thomas () (Department of Economics, Umeå University) Johansson-Stenman, Olof () (Department of Economics, School of Business, Economics and Law, Göteborg University)
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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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Paper provided by Göteborg University, Department of Economics in its series Working Papers in Economics with number
358.
Length: 22 pages Date of creation: 21 Apr 2009 Date of revision: Handle: RePEc:hhs:gunwpe:0358
Contact details of provider: 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/ More information through EDIRC
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