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Conspicuous consumption, conspicuous health, and optimal taxation

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  • Mujcic, Redzo
  • Frijters, Paul

Abstract

We present a simple model of status-seeking over multiple socioeconomic domains by introducing the concept of conspicuous health as an argument in the utility function, in addition to the well-established conspicuous consumption term. We explore the implications of such a utility function for optimal non-linear taxation, where an increase in concerns for conspicuous health has an opposite effect on the marginal tax rate, compared to an increase in concerns for conspicuous consumption. Using life satisfaction panel data from Australia, along with an improved measure of exogenous reference groups (that accounts for the ‘time era’ of respondents), we find empirical evidence of a comparison health effect.

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  • Mujcic, Redzo & Frijters, Paul, 2015. "Conspicuous consumption, conspicuous health, and optimal taxation," Journal of Economic Behavior & Organization, Elsevier, vol. 111(C), pages 59-70.
  • Handle: RePEc:eee:jeborg:v:111:y:2015:i:c:p:59-70
    DOI: 10.1016/j.jebo.2014.12.017
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    Cited by:

    1. Goerke, Laszlo & Neugart, Michael, 2017. "Social comparisons in oligopsony," Journal of Economic Behavior & Organization, Elsevier, vol. 141(C), pages 196-209.
    2. Gallice, Andrea, 2018. "Social status, preferences for redistribution and optimal taxation: A survey," Economics Discussion Papers 2018-31, Kiel Institute for the World Economy (IfW).
    3. Lars Thiel, 2014. "Illness and Health Satisfaction: The Role of Relative Comparisons," SOEPpapers on Multidisciplinary Panel Data Research 695, DIW Berlin, The German Socio-Economic Panel (SOEP).
    4. repec:eee:soceco:v:68:y:2017:i:c:p:79-90 is not listed on IDEAS
    5. Knabe, Andreas & Borah, Melanie & Kuhställer, Carina, 2016. "Reference Income Effects in the Determination of Equivalence Scales Using Income Satisfaction Data," Annual Conference 2016 (Augsburg): Demographic Change 145545, Verein für Socialpolitik / German Economic Association.
    6. Brown, Sarah & Gray, Daniel, 2016. "Household finances and well-being in Australia: An empirical analysis of comparison effects," Journal of Economic Psychology, Elsevier, vol. 53(C), pages 17-36.
    7. Fiorillo, Damiano & Lubrano Lavadera, Giuseppe & Nappo, Nunzia, 2016. "Social participation and self-rated psychological health," MPRA Paper 72879, University Library of Munich, Germany.
    8. Odermatt, Reto & Stutzer, Alois, 2017. "Subjective Well-Being and Public Policy," IZA Discussion Papers 11102, Institute for the Study of Labor (IZA).
    9. Howley, P.; & Knight, S.;, 2018. "Taking pleasure from neighbours’ misfortune: Comparison effects, social norms and the well-being of the unemployed," Health, Econometrics and Data Group (HEDG) Working Papers 18/02, HEDG, c/o Department of Economics, University of York.

    More about this item

    Keywords

    Simultaneous status races; Conspicuous health; Optimal taxation; Subjective well-being; Exogenous reference groups; Panel data;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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