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

Journal article
Authors T. Aronsson
Olof Johansson-Stenman
Published in American Economic Journal-Economic Policy
Volume 10
Issue 1
Pages 39-76
ISSN 1945-7731
Publication year 2018
Published at Department of Economics
Pages 39-76
Language en
Links dx.doi.org/10.1257/pol.20150369
Keywords nonlinear income taxation, public good provision, relative-income, positional externalities, redistributive taxation, welfare economics, self-selection, optimal labor, consumption, policy, Business & Economics, iglitz je, 1982, journal of public economics, v17, p213, ern n, 1982, journal of public economics, v17, p181
Subject categories Business Administration

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.

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