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Paternalism against Veblen: Optimal Taxation and Non-Respected Preferences for Social Comparisons

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This paper compares optimal nonlinear income tax policies of welfarist and paternalist governments, where the latter does not respect individual preferences regarding relative consumption. Consistent with previous findings, relative consumption concerns under welfarism typically imply higher marginal income tax rates. Remarkably, the optimal marginal tax rules are very similar in the paternalist case. For example, if relative consumption concerns are based on mean value comparisons and all consumers are equally positional, then the first-best tax rules are identical between the governments. Extensive numerical simulations supplement the theoretical results, and make it possible to compare also tax levels and overall redistribution.

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  • Aronsson, Thomas & Johansson-Stenman, Olof, 2017. "Paternalism against Veblen: Optimal Taxation and Non-Respected Preferences for Social Comparisons," Umeå Economic Studies 945, Umeå University, Department of Economics.
    • Handle: RePEc:hhs:umnees:0945
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    2. Wendner, Ronald & Ghosh, Sugata, 2017. "Positional Preferences: Efficiency and Distortions under Welfarist- and Paternalistic Governments," MPRA Paper 77839, University Library of Munich, Germany.
    3. Sjögren, Tomas, 2016. "Consumption Norms with Endogenous Norm Beliefs – Implications for Welfare, Commodity Taxation and Income Redistribution," Umeå Economic Studies 938, Umeå University, Department of Economics.

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    More about this item

    Keywords

    nonlinear taxation; redistribution; status; 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

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