IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Signalling, Social Status and Labor Income Taxes

  • Ennio Bilancini

    ()

  • Leonardo Boncinelli

    ()

We investigate the effects of introducing a linear labor income tax under the assumptions that individuals have concerns for social status, that they can signal their relative standing by spending on a conspicuous good, and that the tax revenue is redistributed by means of lump sum transfers. We show that the way social status is defined – i.e. how relative standing is computed and evaluated – crucially affects the desirability of the tax policy. More precisely, if status is ordinal then a labor income tax can decrease waste in conspicuous consumption only if the distribution of pre-tax incomes (or earning potentials) is not too unequal. The same applies for the tax to induce a Pareto improvement, but with the bound on pre-tax inequality being smaller. Instead, if status is cardinal then neither requirement applies: for any degree of pre-tax inequality we can find a cardinal notion of status such that the introduction of a labor income tax induces both a waste reduction and a strict Pareto improvement. However, under cardinal status a labor income tax is not necessarily more desirable than under ordinal status. Indeed, if status is cardinal in the sense that the status differential between being considered rich and being considered poor is strongly dependent on the income of the rich, then a labor income tax is more likely to increase social waste than under ordinal status.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.recent.unimore.it/wp/RECent-wp34.pdf
Download Restriction: no

Paper provided by University of Modena and Reggio E., Dept. of Economics "Marco Biagi" in its series Center for Economic Research (RECent) with number 034.

as
in new window

Length: pages 20
Date of creation: Oct 2009
Date of revision:
Handle: RePEc:mod:recent:034
Contact details of provider: Web page: http://www.recent.unimore.it/
More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:mod:recent:034. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.