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Positional Preferences In Time And Space: Implications For Optimal Income Taxation

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Author Info

  • Aronsson, Thomas

    ()
    (Department of Economics, Umeå University)

  • Johansson-Stenman, Olof

    ()
    (Department of Economics)

Abstract

This paper concerns optimal nonlinear taxation in an OLG model with two ability-types, where people care about their own consumption relative to (i) other people’s current consumption, (ii) own past consumption, and (iii) other people’s past consumption. We show that intertemporal consumption comparisons affect the marginal income tax structure in the same qualitative way as comparisons based on other people’s current consumption. Based on available empirical estimates, comparisons with other people’s current and previous consumption tend to substantially increase the optimal marginal labor income tax rates, while they may either increase or decrease the optimal marginal capital income tax rates.

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Bibliographic Info

Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 800.

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Length: 38 pages
Date of creation: 31 Jan 2010
Date of revision:
Handle: RePEc:hhs:umnees:0800

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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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Related research

Keywords: Optimal income taxation; asymmetric information; relative consumption; status; habit formation; positional goods;

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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 828, Umeå University, Department of Economics.

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