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Veblen’s theory of the leisure class revisited: Implications for optimal income taxation
Umeå University, Faculty of Social Sciences, Department of Economics.
Göteborgs universitet.
2010 (English)Report (Other academic)
Abstract [en]

Almost all previous studies on public policy under relative consumption concerns have ignored the role of leisure for status comparisons. Inspired by Veblen (1899), this paper considers a two-type optimal income tax model, where people care about their relative consumption, and where the importance of relative consumption increases with the use of leisure due to increased consumption visibility. We show that increased consumption positionality typically implies higher marginal income tax rates for both ability-types. Using a leisure-weighted measure of reference consumption, rather than a measure where leisure plays no role as in the previous literature, increases the marginal income tax rate implemented for the low-ability type and decreases the marginal income tax rate implemented for the high-ability type, i.e., it gives rise to a regressive tax component.

Place, publisher, year, edition, pages
Umeå: Institutionen för nationalekonomi, Umeå universitet , 2010. , 29 p.
Umeå economic studies, ISSN 0348-1018 ; 812
Keyword [en]
optimal taxation, redistribution, public goods, relative consumption, status, positional goods
National Category
Research subject
URN: urn:nbn:se:umu:diva-37239OAI: diva2:358439
Available from: 2010-10-21 Created: 2010-10-21 Last updated: 2011-09-28Bibliographically approved

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Aronsson, Thomas
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Department of Economics

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ReferencesLink to record
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