Umeå Economic Studies, Department of Economics, Umeå University
No 800:
POSITIONAL PREFERENCES IN TIME AND SPACE: IMPLICATIONS FOR OPTIMAL INCOME TAXATION
Thomas Aronsson ()
and Olof Johansson-Stenman ()
Abstract: This paper concerns optimal nonlinear taxation in an OLG
model with two ability-types, 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
intertemporal consumption comparisons affect the marginal income tax
structure in the same qualitative way as comparisons based on other
people’s current consumption. Based on available empirical estimates,
comparisons with other people’s current and previous consumption tend to
substantially increase the optimal marginal labor income tax rates, while
they may either increase or decrease the optimal marginal capital income
tax rates.
Keywords: Optimal income taxation; asymmetric information; relative consumption; status; habit formation; positional goods; (follow links to similar papers)
JEL-Codes: D62; H21; H23; H41; (follow links to similar papers)
38 pages, January 31, 2010
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