Questionable Luxury Taxes: Results from a Mating Game
AbstractThis contribution provides a game theoretical derivation of market demand as a function of the level and distribution of income in the considered economy: if (i) the price is low, everyone buys the good; if (ii ) the price is high, only the rich buy the good (a status good in a narrow sense). If (iii) the price is located in very high or in middle range, demand collapses. With this, we explain the critical price from which a status good acts as a distinctive signal. In addition, this approach shows the potential welfare-improving impact of conspicuous consumption. Taking these results into account, recommendations by numerous economists to prevent the welfare losses of conspicuous consumption by introducing a luxury tax are highly questionable.
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Bibliographic InfoPaper provided by Helmut Schmidt University, Hamburg in its series Working Paper with number 86/2008.
Length: 26 pages
Date of creation: Aug 2008
Date of revision:
luxury tax; conspicuous consumption; mating model; signaling game; status good;
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-09-29 (All new papers)
- NEP-GTH-2008-09-29 (Game Theory)
- NEP-PBE-2008-09-29 (Public Economics)
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