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Positional Preferences In Time And Space: Implications For Optimal Income Taxation

Author

Listed:
  • Aronsson, Thomas

    (Department of Economics, Umeå University)

  • Johansson-Stenman, Olof

    (Department of Economics)

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.

Suggested Citation

  • Aronsson, Thomas & Johansson-Stenman, Olof, 2010. "Positional Preferences In Time And Space: Implications For Optimal Income Taxation," Umeå Economic Studies 800, Umeå University, Department of Economics.
    • Handle: RePEc:hhs:umnees:0800
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    Cited by:

    1. Aronsson, Thomas & Johansson-Stenman, Olof, 2011. "State-Variable Public Goods When Relative Consumption Matters: A Dynamic Optimal Taxation Approach," Umeå Economic Studies 828, Umeå University, Department of Economics.

    More about this item

    Keywords

    Optimal income taxation; asymmetric information; relative consumption; status; habit formation; positional goods;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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