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Status preferences and optimal corrective taxes: a note

Author

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  • Beckmann, Klaus

    (Helmut Schmidt University, Hamburg)

  • Gattke, Susan

    (Helmut Schmidt University, Hamburg)

Abstract

We take issue with the argument expounded, among others, by Layard (2006, Economic Journal) that status-seeking preferences justify heavier taxation of income because this serves to internalise the negative externality that the pursuit of status imposes on others. In a model where status depends on both income and effort, we show that the optimal corrective tax rate is smaller than if non-monetary status plays no role, and that a subsidy of work effort at the margin may be called for. Additionally, we demonstrate how the elasticity of labour supply depends on the parameters of the status production function in such a model, and discuss potential implications for optimal income taxation.

Suggested Citation

  • Beckmann, Klaus & Gattke, Susan, 2008. "Status preferences and optimal corrective taxes: a note," Working Paper 76/2008, Helmut Schmidt University, Hamburg.
    • Handle: RePEc:ris:vhsuwp:2008_076
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    Cited by:

    1. Beckmann Klaus & Gerrits Carsten, 2009. "Armutsbekämpfung durch Reduktion von Korruption: eine Rolle für Unternehmen? / Fighting poverty by fighting corruption: A task for private enterprise?," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 60(1), pages 463-494, January.

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