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

Paternalism against Veblen: Optimal Taxation and Non-respected Preferences for Social Comparisons† AbstractThis 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. (JEL D62, D72, H21, H23, H24) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Economic Policy American Economic Association

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

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Publisher
American Economic Association
Copyright
Copyright © 2018 © American Economic Association
ISSN
1945-7731
D.O.I.
10.1257/pol.20150369
Publisher site
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Abstract

AbstractThis 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. (JEL D62, D72, H21, H23, H24)

Journal

American Economic Journal: Economic PolicyAmerican Economic Association

Published: Feb 1, 2018

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