UNSPECIFIED. (2001) Optimal income tax in the presence of status effects. JOURNAL OF PUBLIC ECONOMICS, 81 (2). pp. 193-212. ISSN 0047-2727

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Abstract

The existence of distortions from individuals competing to attain social status by using consumption signals justifies some measure of income tax as a counter-acting distortion. The question posed here is whether it also constitutes a reason for a more progressive income tax schedule. The answer is found to be broadly negative if progressiveness is interpreted as a more convex tax schedule, unless the rich are more concerned with status-seeking than the poor. On the other hand, status-seeking makes the optimal tax schedule steeper so that redistribution is increased. Essentially, the analysis of status-seeking based on a signaling approach confirms and strengthens the existing view of an optimal tax schedule, and can be incorporated into the Diamond [American Economic Review 88 (1998) 83-95] approach. (C) 2001 Elsevier Science B.V. All rights reserved.

Item Type:	Journal Article
Subjects:	H Social Sciences > HC Economic History and Conditions
Journal or Publication Title:	JOURNAL OF PUBLIC ECONOMICS
Publisher:	ELSEVIER SCIENCE SA
ISSN:	0047-2727
Date:	August 2001
Volume:	81
Number:	2
Number of Pages:	20
Page Range:	pp. 193-212
Publication Status:	Published
URI:	http://wrap.warwick.ac.uk/id/eprint/12006

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