Status preferences and optimal corrective taxes: a note
AbstractWe take issue with the argument expounded, among others, by Layard (2006, Economic Journal) that status-seeking preferences justify heavier taxation of income because this serves to internalise the negative externality that the pursuit of status imposes on others. In a model where status depends on both income and effort, we show that the optimal corrective tax rate is smaller than if non-monetary status plays no role, and that a subsidy of work effort at the margin may be called for. Additionally, we demonstrate how the elasticity of labour supply depends on the parameters of the status production function in such a model, and discuss potential implications for optimal income taxation.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Helmut Schmidt University, Hamburg in its series Working Paper with number 76/2008.
Length: 21 pages
Date of creation: 31 Jan 2008
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-29 (All new papers)
- NEP-PBE-2008-09-29 (Public Economics)
- NEP-PUB-2008-09-29 (Public Finance)
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Max Steinhardt).
If references are entirely missing, you can add them using this form.