() and Olof Johansson-Stenman
Thomas Aronsson: Department of Economics, Umeå School of Business and Economics, Postal: Umeå University, S 901 87 Umeå, Sweden
Olof Johansson-Stenman: Department of Economics, School of Business, Economics and Law, Postal: University of Gothenburg, SE – 405 30 Gothenburg, Sweden
Abstract: This paper analyzes optimal differential commodity taxation, together with optimal nonlinear income taxation, in order to deal with positional preferences. It also derives the optimal public provision of private goods both when differential commodity taxation is feasible and when it is not. It is shown that publicly provided non-positional private goods which are (possibly imperfect) substitutes for positional private goods should be used as a corrective instrument even if the tax system is optimal, i.e. even when differential commodity taxation is feasible. An exception is the special case where all consumers contribute equally much to the positional externality, in which the commodity tax constitutes a perfect instrument for internalizing the positional externality.
37 pages, May 6, 2014
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