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

  • Aronsson, Thomas

    ()

    (Department of Economics, Umeå School of Business and Economics)

  • Johansson-Stenman, Olof

    ()

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

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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Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 886.

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Length: 37 pages
Date of creation: 06 May 2014
Date of revision:
Handle: RePEc:hhs:umnees:0886
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Department of Economics, Umeå University, S-901 87 Umeå, Sweden

Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
Web page: http://www.econ.umu.se/
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