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Publicly Provided Private Goods and Optimal Taxation when Consumers Have Positional Preferences

  • Aronsson, Thomas

    ()

    (Dept of Economics, Umeå University)

  • Johansson-Stenman, Olof

    ()

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

This paper analyzes optimal differential commodity taxation, together with optimal nonlinear income taxation, in order to deal with positional preferences. It also derives the optimal public provision of private goods both when differential commodity taxation is feasible and when it is not. It is shown that publicly provided non-positional private goods which are (possibly imperfect) substitutes for positional private goods should be used as a corrective instrument even if the tax system is optimal, i.e. even when differential commodity taxation is feasible. An exception is the special case where all consumers contribute equally much to the positional externality, in which the commodity tax constitutes a perfect instrument for internalizing the positional externality.

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File URL: http://hdl.handle.net/2077/32519
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Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 558.

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Length: 37 pages
Date of creation: 08 Mar 2013
Date of revision:
Handle: RePEc:hhs:gunwpe:0558
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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