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When the Joneses' consumption hurts: Optimal public good provision and nonlinear income taxation

Listed author(s):
  • Aronsson, Thomas
  • Johansson-Stenman, Olof

This paper considers a model with nonlinear income taxation and public good provision when people care about their relative consumption compared to others. The standard optimality expressions are modified by terms that reflect the extent to which people care about relative consumption. The extent to which the public good provision rule should be modified is shown to depend critically on the preference elicitation format. The modified tax formulas imply substantially higher marginal income tax rates than in the conventional case, under plausible assumptions and available empirical estimates regarding comparison consumption concerns.

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File URL: http://www.sciencedirect.com/science/article/pii/S0047-2727(07)00208-3
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Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 92 (2008)
Issue (Month): 5-6 (June)
Pages: 986-997

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Handle: RePEc:eee:pubeco:v:92:y:2008:i:5-6:p:986-997
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505578

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