Umeå Economic Studies, Department of Economics, Umeå University
No 812:
Veblen’s Theory of the Leisure Class Revisited: Implications for Optimal Income Taxation
Thomas Aronsson ()
and Olof Johansson-Stenman ()
Abstract: 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.
Keywords: optimal taxation; redistribution; public goods; relative consumption; status; positional goods; (follow links to similar papers)
JEL-Codes: D62; H21; H23; H41; (follow links to similar papers)
29 pages, August 25, 2010
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