Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 63: How Much Do We Care About Absolute Versus Relative Income and Consumption?
Francisco Alpizar, Fredrik Carlsson () and Olof Johansson-Stenman
Additional contact information
Francisco Alpizar: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Box 640, SE 405 30 GÖTEBORG
Fredrik Carlsson: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Box 640, SE 40530 GÖTEBORG
Olof Johansson-Stenman: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Box 640, SE 405 30 GÖTEBORG
Abstract: We find, using survey-experimental methods, that most individuals are concerned with both relative income and relative consumption of particular goods. The degree of concern varies in the expected direction depending on the properties of the good. However, contrary to what has been suggested in the previous literature, we find that relative consumption is also important for vacation and insurance, which are typically seen as non-positional goods. Further, absolute consumption is also found to be important for cars and housing, which are widely regarded as highly positional. Implications for Pareto-efficient taxation are illustrated using the results from the experiment.
Keywords: status; relative income; optimal taxes; experiments
29 pages, November 14, 2001
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