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Optimal taxation under status consumption and preferences for equality

Author

Listed:
  • Thomas Aronsson
  • Tomas Sjögren
  • Sonal Yadav

Abstract

This article analyses optimal taxation when (1) a fraction of people has positional preferences, and (2) concerns for relative consumption and preferences for equality are operative simultaneously. We show that incentive compatibility motivates a regressive marginal tax structure, which in the end implies that people with positional preferences are taxed at a lower marginal rate than people without such preferences. A counteracting mechanism arises if those who are not concerned with their relative consumption have preferences for income-equality, even if people with positional preferences should still be taxed at a lower marginal rate than motivated by their contributions to externalities.

Suggested Citation

  • Thomas Aronsson & Tomas Sjögren & Sonal Yadav, 2025. "Optimal taxation under status consumption and preferences for equality," Oxford Economic Papers, Oxford University Press, vol. 77(2), pages 584-595.
    • Handle: RePEc:oup:oxecpp:v:77:y:2025:i:2:p:584-595.
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    File URL: http://hdl.handle.net/10.1093/oep/gpae039
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    More about this item

    Keywords

    optimal taxation; relative consumption; equality;
    All these keywords.

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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