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Conspicuous Leisure: Optimal Income Taxation when both Relative Consumption and Relative Leisure Matter

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  • Aronsson, Thomas

    ()
    (Department of Economics, Umeå University)

  • Johansson-Stenman, Olof

    ()
    (Department of Economics, School of Business, Economics and Law, University of Gothenburg)

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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Bibliographic Info

Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 774.

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Length: 21 pages
Date of creation: 11 May 2009
Date of revision:
Handle: RePEc:hhs:umnees:0774

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Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
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Web page: http://www.econ.umu.se/
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Keywords: Optimal taxation; redistribution; public goods; relative consumption; status; positional goods;

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Citations

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Cited by:
  1. Aronsson, Thomas & Johansson-Stenman, Olof, 2011. "State-Variable Public Goods When Relative Consumption Matters: A Dynamic Optimal Taxation Approach," UmeÃ¥ Economic Studies, UmeÃ¥ University, Department of Economics 828, Umeå University, Department of Economics.
  2. 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.
  3. Aronsson, Thomas & Johansson-Stenman, Olof, 2013. "Publicly Provided Private Goods and Optimal Taxation when Consumers Have Positional Preferences," Working Papers in Economics, University of Gothenburg, Department of Economics 558, University of Gothenburg, Department of Economics.
  4. Paul Eckerstorfer, 2011. "Relative Consumption Concerns and the Optimal Tax Mix," NRN working papers, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria 2011-12, The Austrian Center for Labor Economics and the Analysis of the Welfare State, Johannes Kepler University Linz, Austria.

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