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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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