Status preferences and optimal corrective taxes: a note
We take issue with the argument expounded, among others, by Layard (2006, Economic Journal) that status-seeking preferences justify heavier taxation of income because this serves to internalise the negative externality that the pursuit of status imposes on others. In a model where status depends on both income and effort, we show that the optimal corrective tax rate is smaller than if non-monetary status plays no role, and that a subsidy of work effort at the margin may be called for. Additionally, we demonstrate how the elasticity of labour supply depends on the parameters of the status production function in such a model, and discuss potential implications for optimal income taxation.
|Date of creation:||31 Jan 2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 (0)40 6541 2590
Fax: +49 (0)40 6541 2780
Web page: http://www.hsu-hh.de/fgvwl/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ris:vhsuwp:2008_076. 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: (Klaus Bekcmann)
If references are entirely missing, you can add them using this form.