American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Paternalism against Veblen: Optimal Taxation and Non-respected Preferences for Social Comparisons
American Economic Journal: Economic Policy
vol. 10,
no. 1, February 2018
(pp. 39–76)
Abstract
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 typically induce a welfarist government to increase the marginal tax rates to internalize positional externalities. Remarkably, the optimal marginal tax rules are often very similar in the paternalist case, where such externalities are not taken into account. We identify several cases where the marginal tax rules are indeed identical between the governments. Numerical simulations show that marginal and average tax levels and the overall redistribution are often also similar.Citation
Aronsson, Thomas, and Olof Johansson-Stenman. 2018. "Paternalism against Veblen: Optimal Taxation and Non-respected Preferences for Social Comparisons." American Economic Journal: Economic Policy, 10 (1): 39–76. DOI: 10.1257/pol.20150369Additional Materials
JEL Classification
- D62 Externalities
- D72 Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- H21 Taxation and Subsidies: Efficiency; Optimal Taxation
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H24 Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
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