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Relative consumption preferences and public provision of private goods

Listed author(s):
  • König, Tobias
  • Lausen, Tobias
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    This paper shows that the public provision of private goods may be justified on pure efficiency grounds in an environment where individuals have relative consumption concerns. By providing private goods, governments directly intervene in the consumption structure, and thereby have an instrument to correct for the excessive consumption of positional goods. We identify sufficient conditions when the public provision of private goods is always Pareto-improving, even when (linear) consumption taxes are available. In fact, with the public provision of private goods, there are cases where first-best allocations can be achieved, and a luxury tax on the positional good is redundant.

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    File URL: https://www.econstor.eu/bitstream/10419/156329/1/882162217.pdf
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    Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Behavior with number SP II 2016-213.

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    Date of creation: 2016
    Handle: RePEc:zbw:wzbmbh:spii2016213
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