Relative Consumption, Optimal Taxation and Public Provision of Private Goods
This paper shows that public provision of private goods may be justified on pure efficiency grounds in an environment where individuals have relative consumption concerns. By providing private goods, governments directly intervene in the consumption structure, thereby having an instrument to correct for the excessive consumption of positional goods. We identify sufficient conditions where public provision of private goods is always part of the optimal policy mix, even when consumption taxes are available. In fact, with public provision of private goods, there are cases where the first-best allocation can be achieved, and (linear) consumption taxes can be redundant.
|Date of creation:||Feb 2013|
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- Ireland, Norman J., 1994. "On limiting the market for status signals," Journal of Public Economics, Elsevier, vol. 53(1), pages 91-110, January.
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- Sara J. Solnick & David Hemenway, 2005. "Are Positional Concerns Stronger in Some Domains than in Others?," American Economic Review, American Economic Association, vol. 95(2), pages 147-151, May.
- Ng, Yew-Kwang, 1987. "Diamonds Are a Government's Best Friend: Burden-Free Taxes on Goods Valued for Their Values," American Economic Review, American Economic Association, vol. 77(1), pages 186-91, March.
- Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June.
- Ed Hopkins & Tatiana Kornienko, 2002.
"Running to Keep in the Same Place: Consumer Choice as a Game of Status,"
ESE Discussion Papers
92, Edinburgh School of Economics, University of Edinburgh.
- Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," American Economic Review, American Economic Association, vol. 94(4), pages 1085-1107, September.
- Olof Johansson-Stenman & Fredrik Carlsson & Dinky Daruvala, 2002. "Measuring Future Grandparents" Preferences for Equality and Relative Standing," Economic Journal, Royal Economic Society, vol. 112(479), pages 362-383, April.
- Micheletto, Luca, 2008. "Redistribution and optimal mixed taxation in the presence of consumption externalities," Journal of Public Economics, Elsevier, vol. 92(10-11), pages 2262-2274, October.
- Konrad, Kai A. & Lommerud, Kjell Erik, 1993. "Relative standing comparisons, risk taking, and safety regulations," Journal of Public Economics, Elsevier, vol. 51(3), pages 345-358, July.
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