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Conspicuous Leisure: Optimal Income Taxation when both Relative Consumption and Relative Leisure Matter

Author

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  • Aronsson, Thomas

    () (Department of Economics, Umeå University)

  • Johansson-Stenman, Olof

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

Abstract

Previous studies on public policy under relative consumption concerns have ignored the role of leisure comparisons. This paper considers a two-type optimal nonlinear income tax model where people care both about their relative consumption and their relative leisure. Increased consumption positionality typically implies higher marginal income tax rates for both the high-ability and the low-ability type, whereas leisure positionality has an offsetting role. However, this offsetting role is not symmetric; concern about relative leisure implies a progressive income tax component, i.e., a component that is larger for the high-ability than for the low-ability type. Moreover, leisure positionality does not modify the policy rule for public good provision when the income tax is optimally chosen.

Suggested Citation

  • Aronsson, Thomas & Johansson-Stenman, Olof, 2009. "Conspicuous Leisure: Optimal Income Taxation when both Relative Consumption and Relative Leisure Matter," Working Papers in Economics 358, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0358
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    Cited by:

    1. Aronsson, Thomas & Johansson-Stenman, Olof, 2013. "Publicly Provided Private Goods and Optimal Taxation when Consumers Have Positional Preferences," Working Papers in Economics 558, University of Gothenburg, Department of Economics.
    2. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "Paternalism against Veblen: Optimal Taxation and Non-Respected Preferences for Social Comparisons," Umeå Economic Studies 901, Umeå University, Department of Economics.
    3. Goerke, Laszlo & Pannenberg, Markus, 2013. "Keeping up with the Joneses: Income Comparisons and Labour Supply," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80033, Verein für Socialpolitik / German Economic Association.
    4. Collewet, Marion & de Grip, Andries & de Koning, Jaap, 2015. "Conspicuous Work: Peer Working Time, Labour Supply and Happiness for Male Workers," IZA Discussion Papers 9011, Institute for the Study of Labor (IZA).
    5. Goerke, Laszlo & Neugart, Michael, 2017. "Social comparisons in oligopsony," Journal of Economic Behavior & Organization, Elsevier, vol. 141(C), pages 196-209.
    6. Collewet M.M.F. & Grip A. de & Koning J.d., 2015. "Peer working time, labour supply, and happiness for male workers," ROA Research Memorandum 006, Maastricht University, Research Centre for Education and the Labour Market (ROA).
    7. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "Positional preferences in time and space: Optimal income taxation with dynamic social comparisons," Journal of Economic Behavior & Organization, Elsevier, vol. 101(C), pages 1-23.
    8. Aronsson, Thomas & Johansson-Stenman, Olof, 2011. "State-Variable Public Goods When Relative Consumption Matters: A Dynamic Optimal Taxation Approach," Umeå Economic Studies 828, Umeå University, Department of Economics.
    9. Paul Eckerstorfer, 2014. "Relative Consumption Concerns and the Optimal Tax Mix," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 16(6), pages 936-958, December.
    10. repec:eee:soceco:v:68:y:2017:i:c:p:79-90 is not listed on IDEAS
    11. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "State-variable public goods and social comparisons," Journal of Environmental Economics and Management, Elsevier, vol. 68(2), pages 390-410.
    12. Aronsson, Thomas & Johansson-Stenman, Olof, 2015. "Keeping up with the Joneses, the Smiths and the Tanakas: On international tax coordination and social comparisons," Journal of Public Economics, Elsevier, vol. 131(C), pages 71-86.

    More about this item

    Keywords

    Optimal taxation; redistribution; public goods; relative consumption; status; positional goods;

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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