Optimal Nonlinear Redistributive Taxation and Public Good Provision in an Economy with Veblen Effects

2011/01/06 by Luca Micheletto · 1 citation
Economics, Econometrics and Finance · Social Sciences · #Economics #Fiscal Policy and Economic Growth #Gender, Labor, and Family Dynamics #Growth model #Income tax #Interdependence #Keeping up with the Joneses #Law #Microeconomics #Optimal tax #Politics, Economics, and Education Policy #Public economics #Public good #Veblen good

paper · pdf · doi:10.1111/j.1467-9779.2010.01493.x

openalex publication_date 2011/01/06 · openalex created_date 2025/10/10 · openalex updated_date 2026/05/21

Abstract

Abstract This paper deals with the consequences of the assumption of negatively interdependent preferences for the shape of the optimal nonlinear income tax and the efficient level of public good provision in a setting where the agents' market ability is private information. The analysis points out that the terms added in the tax formulas due to the presence of Veblen effects might justify a reduction in the optimal marginal tax rates faced by the different individuals. Also, the desirability of negative marginal tax rates cannot be ruled out. With respect to the issue of the optimal level of public good provision, I derive a modified Samuelson rule and highlight the fact that the Veblen‐based part of the formula might require to distort downwards the efficient level of public good provision.

Citations

• Optimal Redistributive Taxation When Individual Welfare Depends Upon Relative Income
• Bandwagon, Snob, and Veblen Effects in the Theory of Consumers' Demand
• Income, Saving, and the Theory of Consumer Behaviour.

Cited by

• Conspicuous consumption [wikipedia]

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