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Social Identity, Education and Tax Policy

Author

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  • Aronsson, Thomas

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

  • Heidrich, Stefanie

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

  • Wikström, Magnus

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

Abstract

This paper analyzes the implications of social identity and self-categorization in the context of optimal redistributive income taxation. A two-type model is supplemented by an assumption that individuals select themselves into social categories, in which norms are formed and education effort choices partly depend on these norms. Optimal tax policy is analyzed under two different assumptions about the social objective function: a welfarist objective based on consumer preferences and a paternalist objective that does not reflect the consumer preference for social identity. We show how the welfarist government implements a tax policy to internalize the externalities arising from social norms, while the paternalist government uses tax policy to make individuals behave as if their preferences for social identity were absent.

Suggested Citation

  • Aronsson, Thomas & Heidrich, Stefanie & Wikström, Magnus, 2014. "Social Identity, Education and Tax Policy," Umeå Economic Studies 891, Umeå University, Department of Economics.
  • Handle: RePEc:hhs:umnees:0891
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    More about this item

    Keywords

    Optimal income taxation; education; social identity; self-categorization;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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