Relative Consumption Concerns and the Optimal Tax Mix

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte.

Asymmetric and non-atmospheric consumption externalities, and efficient consumption taxation

“…This can be seen from the many-person Ramsey rule which we provide in the Appendix (equations (64) and (65)). 18 It has already been shown by Micheletto (2008) and Eckerstorfer (2013) in Mirrlees-type models that this result does not hold if the externality is of the non-atmospheric type, as it is the case in our study. Hence, we confirm this finding for a Ramsey-type optimal tax model.…”

“…For example, Aronsson and JohanssonStenman (2008) show that the presence of a keeping up with the Joneses externality implies substantially higher marginal income tax rates. The issue of a consumption externality being non-atmospheric rather than atmospheric has also already been taken up by Eckerstorfer (2013), Micheletto (2008) and Wendner (2013). From these studies it has become evident that the nature of a consumption externality indeed matters for the optimal tax structure.…”

“…17 Thus, the 'additivity property' derived by Sandmo (1975) in a model with an atmospheric externality does not apply. The 'additivity property' states that an externality is best addressed by imposing a tax directly on the externality-generating good and by leaving the rest of the tax system unaffected by the externality.…”

“…a solution to this system of equations exists and the determinant of this matrix is strictly positive. 17 The optimal tax formulas contain no redistributive component as personalized lump-sum taxes are available. If lump-sum taxes were restricted to be uniform, t * * z and t * * x would also depend on a redistributive term.…”

“…18 In our framework it is optimal to also tax good 15 In principle γ SB j and by this i could also be negative. For a detailed discussion on the sign of the Lagrange multiplier of constraint (17) see Eckerstorfer (2013). 16 The 2x2 sub-Slutsky matrix of the taxed goods is assumed to be non-singular and negative semi-definite, i.e.…”