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Positional preferences in time and space: Optimal income taxation with dynamic social comparisons
Umeå University, Faculty of Social Sciences, Umeå School of Business and Economics (USBE), Economics.
Univ Gothenburg, Sch Business Econ & Law, Dept Econ, S-40530 Gothenburg, Sweden.
2014 (English)In: Journal of Economic Behavior and Organization, ISSN 0167-2681, Vol. 101, 1-23 p.Article in journal (Refereed) Published
Abstract [en]

This paper concerns optimal redistributive non-linear income taxation in an OLG model, where people care about their own consumption relative to (i) other people's current consumption, (ii) own past consumption, and (iii) other people's past consumption. We show that both (i) and (iii) affect the marginal income tax structure whereas (ii) does not. We also derive conditions under which atemporal and intertemporal consumption comparisons give rise to exactly the same tax policy responses. On the basis of the available empirical estimates, comparisons with other people's current and past consumption tend to substantially increase the optimal marginal labor income tax rates. Yet, such comparisons may either increase or decrease the optimal marginal capital income tax rates.

Place, publisher, year, edition, pages
2014. Vol. 101, 1-23 p.
Keyword [en]
Optimal income taxation, Asymmetric information, Relative consumption, Status, Habit formation, Positional goods
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URN: urn:nbn:se:umu:diva-89476DOI: 10.1016/j.jebo.2014.01.004ISI: 000335281500001OAI: diva2:731851
Available from: 2014-07-02 Created: 2014-06-03 Last updated: 2014-07-02Bibliographically approved

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