Title: POSITIONAL PREFERENCES IN TIME AND SPACE: IMPLICATIONS FOR OPTIMAL INCOME TAXATION
Abstract: This paper concerns optimal redistributive non-linear income taxation in an OLG model, where people care about their own consumption relative to (i) other people’s current consumption, (ii) own past consumption, and (iii) other people’s past consumption. We show that both (i) and (iii) affect the marginal income tax structure whereas (ii) does not. We also derive conditions under which atemporal and intertemporal consumption comparisons give rise to exactly the same tax policy responses. Based on available empirical estimates, comparisons with other people’s current and past consumption tend to substantially increase the optimal marginal labor income tax rates, while they may either increase or decrease the optimal marginal capital income tax rates.
Publication Year: 2010
Publication Date: 2010-01-22
Language: en
Type: article
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Cited By Count: 1
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