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Conspicuous Consumption, Conspicuous Health, and Optimal Taxation

We present a simple model of status-seeking over multiple socioeco- nomic domains by introducing the concept of conspicuous health as an argument in the utility function, in addition to the well-established conspicuous consumption term. We explore the implications of such a utility function for optimal income taxation, where we show an in- crease in concerns for conspicuous health to have an opposite effect on the marginal tax rate, compared to an increase in concerns for conspic- uous consumption. Using life satisfaction panel data from Australia, along with an improved measure of exogenous reference groups (that accounts for the ‘time era’ of respondents), we find evidence of a com- parison health effect.

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Paper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 483.

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Date of creation: 20 Aug 2013
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Handle: RePEc:qld:uq2004:483
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  1. Andrew E. Clark and Andrew J. Oswald, . "Satisfaction and Comparison Income," Economics Discussion Papers 419, University of Essex, Department of Economics.
  2. van de Stadt, Huib & Kapteyn, Arie & van de Geer, Sara, 1985. "The Relativity of Utility: Evidence from Panel Data," The Review of Economics and Statistics, MIT Press, vol. 67(2), pages 179-87, May.
  3. Alpaslan Akay & Olivier Bargain & Klaus F. Zimmermann, 2011. "Relative Concerns of Rural-to-Urban Migrants in China," Working Papers 201102, Geary Institute, University College Dublin.
  4. Paul Frijters & Andrew Leigh, 2005. "Materialism on the March: From Conspicuous Leisure to Conspicuous Consumption?," CEPR Discussion Papers 495, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  5. Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2005. "How much do we care about absolute versus relative income and consumption?," Journal of Economic Behavior & Organization, Elsevier, vol. 56(3), pages 405-421, March.
  6. Vendrik, Maarten C.M. & Woltjer, Geert B., 2007. "Happiness and loss aversion: Is utility concave or convex in relative income?," Journal of Public Economics, Elsevier, vol. 91(7-8), pages 1423-1448, August.
  7. Oswald, Andrew J. & Powdthavee, Nattavudh, 2007. "Obesity, Unhappiness, and The Challenge of Affluence: Theory and Evidence," IZA Discussion Papers 2717, Institute for the Study of Labor (IZA).
  8. Johansson-Stenman, Olof & Martinsson, Peter, 2004. "Honestly, why are you driving a BMW?," Working Papers in Economics 141, University of Gothenburg, Department of Economics.
  9. Oswald, Andrew J., 1983. "Altruism, jealousy and the theory of optimal non-linear taxation," Journal of Public Economics, Elsevier, vol. 20(1), pages 77-87, February.
  10. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  11. Clark, Andrew E. & Etilé, Fabrice, 2011. "Happy house: Spousal weight and individual well-being," Journal of Health Economics, Elsevier, vol. 30(5), pages 1124-1136.
  12. Carrell, Scott E. & Hoekstra, Mark & West, James E., 2011. "Is poor fitness contagious?: Evidence from randomly assigned friends," Journal of Public Economics, Elsevier, vol. 95(7-8), pages 657-663, August.
  13. Corazzini, Luca & Esposito, Lucio & Majorano, Francesca, 2012. "Reign in hell or serve in heaven? A cross-country journey into the relative vs absolute perceptions of wellbeing," Journal of Economic Behavior & Organization, Elsevier, vol. 81(3), pages 715-730.
  14. David G. Blanchflower & Andrew J. Oswald & Bert Van Landeghem, 2008. "Imitative Obesity and Relative Utility," NBER Working Papers 14337, National Bureau of Economic Research, Inc.
  15. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," ESE Discussion Papers 92, Edinburgh School of Economics, University of Edinburgh.
  16. Fredrik Carlsson & Olof Johansson-Stenman & Peter Martinsson, 2007. "Do You Enjoy Having More than Others? Survey Evidence of Positional Goods," Economica, London School of Economics and Political Science, vol. 74(296), pages 586-598, November.
  17. Boskin, Michael J & Sheshinski, Eytan, 1978. "Optimal Redistributive Taxation when Individual Welfare Depends upon Relative Income," The Quarterly Journal of Economics, MIT Press, vol. 92(4), pages 589-601, November.
  18. Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June.
  19. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-16, March.
  20. Catherine C. Eckel & Ragan Petrie, 2011. "Face Value," American Economic Review, American Economic Association, vol. 101(4), pages 1497-1513, June.
  21. Wendner, Ronald & Goulder, Lawrence H., 2008. "Status Effects, Public Goods Provision, and the Excess Burden," MPRA Paper 8260, University Library of Munich, Germany.
  22. Stern, Nicholas, 1982. "Optimum taxation with errors in administration," Journal of Public Economics, Elsevier, vol. 17(2), pages 181-211, March.
  23. Erzo F. P. Luttmer, 2005. "Neighbors as Negatives: Relative Earnings and Well-Being," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 963-1002, August.
  24. Andrew B. Abel, 2005. "Optimal Taxation when Consumers Have Endogenous Benchmark Levels of Consumption," Review of Economic Studies, Oxford University Press, vol. 72(1), pages 21-42.
  25. J. Solnick, Sara & Hemenway, David, 1998. "Is more always better?: A survey on positional concerns," Journal of Economic Behavior & Organization, Elsevier, vol. 37(3), pages 373-383, November.
  26. Pingle, Mark & Mitchell, Mike, 2002. "What motivates positional concerns for income?," Journal of Economic Psychology, Elsevier, vol. 23(1), pages 127-148, February.
  27. Baetschmann, Gregori & Staub, Kevin E. & Winkelmann, Rainer, 2011. "Consistent Estimation of the Fixed Effects Ordered Logit Model," IZA Discussion Papers 5443, Institute for the Study of Labor (IZA).
  28. Ball, Sheryl & Eckel, Catherine C., 1998. "The Economic Value of Status," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 24(4), pages 495-514.
  29. repec:ner:tilbur:urn:nbn:nl:ui:12-364325 is not listed on IDEAS
  30. Ada Ferrer-i-Carbonell & Paul Frijters, 2004. "How Important is Methodology for the estimates of the determinants of Happiness?," Economic Journal, Royal Economic Society, vol. 114(497), pages 641-659, 07.
  31. Aronsson, Thomas & Johansson-Stenman, Olof, 2008. "When the Joneses' consumption hurts: Optimal public good provision and nonlinear income taxation," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 986-997, June.
  32. Layard, Richard, 1980. "Human Satisfactions and Public Policy," Economic Journal, Royal Economic Society, vol. 90(363), pages 737-50, December.
  33. Sheryl Ball & Catherine Eckel & Philip J. Grossman & William Zame, 2001. "Status In Markets," The Quarterly Journal of Economics, MIT Press, vol. 116(1), pages 161-188, February.
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