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Positional Concerns In An Olg Model: Optimal Labor And Capital Income Taxation

  • Aronsson, Thomas

    ()

    (Department of Economics, Umeå University)

  • Johansson-Stenman, Olof

    ()

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

This paper concerns optimal income taxation under asymmetric information in a two-type overlapping generations model, where people care about their relative consumption compared to others. The appearance of positional concerns affects the policy choices via two channels: (i) the size of the average degree of positionality and (ii) positionality differences between the (mimicked) low-ability type and the mimicker. Under plausible empirical estimates, the marginal labor income tax rates become substantially larger, and the absolute value of the marginal capital income tax rate implemented for the low-ability type becomes substantially smaller, compared to the conventional optimal income tax model. In addition to measures of reference consumption based on the average consumption, results for the cases of withingeneration and upward comparisons are also presented.

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File URL: http://hdl.handle.net/2077/20064
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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 355.

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Length: 41 pages
Date of creation: 16 Apr 2009
Date of revision:
Handle: RePEc:hhs:gunwpe:0355
Contact details of provider: Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/

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