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Asymmetric and Non-atmospheric Consumption Externalities, and Efficient Consumption Taxation

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  • Paul Eckerstorfer

    () (Department of Economics, University of Linz, Austria)

  • Ronald Wendner

    () (Department of Economics, University of Graz, Austria)

Abstract

We analyze the effects of a generalized class of negative consumption externalities (asymmetric and non-atmospheric) on the structure of effcient commodity tax programs. Households are not only concerned about consumption reference levels - that is, they gain utility from "keeping up with the Joneses" - they also exhibit altruism. Two sets of efficient tax regimes are compared, based, on a welfarist- and a non-welfarist optimality criterion, respectively. Altruism turns out not to be at odds with the consumption externalities. Rather, altruism implicates a bound on efficient utility allocations. A non-welfarist government tolerates less inequality than a welfarist one. In the welfarist (non-welfarist) case, first-best personalized commodity tax rates respond highly sensitively (barely) to whether or not a consumption externality is asymmetric or non-atmospheric. If personalized commodity tax rates are not available (second-best case), the tax rate on a non- positional good is typically different from zero for corrective reasons. For plausible functional forms and parameter values, numerical simulations suggest that second- best tax rates are rather insensitive with respect to both the optimality criterion and the "nature" of the consumption externality.

Suggested Citation

  • Paul Eckerstorfer & Ronald Wendner, 2013. "Asymmetric and Non-atmospheric Consumption Externalities, and Efficient Consumption Taxation," Economics working papers 2013-01, Department of Economics, Johannes Kepler University Linz, Austria.
  • Handle: RePEc:jku:econwp:2013_01
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    Cited by:

    1. Ghosh, Sugata & Wendner, Ronald, 2014. "Positional Preferences, Endogenous Growth, and Optimal Income- and Consumption Taxation," MPRA Paper 60337, University Library of Munich, Germany.
    2. Johansson-Stenman, Olof & Sterner, Thomas, 2015. "Discounting and relative consumption," Journal of Environmental Economics and Management, Elsevier, vol. 71(C), pages 19-33.
    3. Aronsson, Thomas & Johansson-Stenman, Olof & Wendner, Ronald, 2016. "Redistribution through Charity and Optimal Taxation when People are Concerned with Social Status," Working Papers in Economics 642, University of Gothenburg, Department of Economics.
    4. Sjögren, Tomas, 2016. "Consumption Norms with Endogenous Norm Beliefs – Implications for Welfare, Commodity Taxation and Income Redistribution," Umeå Economic Studies 938, Umeå University, Department of Economics.
    5. repec:oup:oxecpp:v:70:y:2018:i:1:p:141-162. is not listed on IDEAS
    6. Benchekroun, Hassan & Long, Ngo Van, 2016. "Status concern and the exploitation of common pool renewable resources," Ecological Economics, Elsevier, vol. 125(C), pages 70-82.
    7. 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.
    8. Aronsson, Thomas & Johansson-Stenman, Olof, 2016. "Inequality Aversion and Marginal Income Taxation," Working Papers in Economics 673, University of Gothenburg, Department of Economics.
    9. König, Tobias & Lausen, Tobias, 2016. "Relative consumption preferences and public provision of private goods," Discussion Papers, Research Unit: Market Behavior SP II 2016-213, Social Science Research Center Berlin (WZB).
    10. 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.
    11. Aronsson, Thomas & Sjögren, Tomas, 2017. "Optimal Taxation, Redistribution, and Environmental Externalities," Umeå Economic Studies 950, Umeå University, Department of Economics.
    12. Brunner Johann K., 2014. "Die Erbschaftsteuer – Bestandteil eines optimalen Steuersystems?," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 15(3), pages 199-218, October.
    13. König, Tobias & Lausen, Tobias, 2017. "Relative Consumption Preferences and Public Provision of Private Goods," Rationality and Competition Discussion Paper Series 18, CRC TRR 190 Rationality and Competition.
    14. Aronsson, Thomas & Mannberg, Andrea, 2015. "Relative consumption of housing: Marginal saving subsidies and income taxes as a second-best policy?," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 439-450.

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    Keywords

    Consumption externality; keeping up with the Joneses; optimal (commodity) taxation; genuine altruism; non-welfarist government;

    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

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