•Optimal taxation under relative concerns and low-skilled unemployment is analyzed.•Positional externalities induce lower marginal tax rates among the low-skilled.•The pattern among the high-skilled ...is the opposite.•Here, the marginal tax rates increase even more than without unemployment.•Thus, relative concerns under unemployment induce progressive marginal taxes.
Existing research on optimal taxation in economies with status-driven relative consumption (implicitly) assumes that there is no involuntary unemployment, despite ample evidence that real world labor markets are typically characterized by such unemployment. We show how the marginal tax policy ought to be modified to simultaneously account for positional consumption externalities and equilibrium unemployment, and find that interaction effects between these two market failures are crucial determinants of the marginal tax structure. In certain cases, the policy incentive to tax away positional externalities vanishes completely, and negative positional externalities may even lead to lower marginal taxation, under involuntary unemployment.
Paternalism against Veblen Aronsson, Thomas; Johansson-Stenman, Olof
American economic journal. Economic policy,
02/2018, Letnik:
10, Številka:
1
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This 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.
This paper analyses how market shares for brand name drugs are affected by generic competition. The analysis is based on micro data for twelve different original drugs, which are all subject to ...generic competition. For five of these drugs, we find that the price of the original relative to the average price of the generic substitutes significantly affects the market share of the original drug. In addition, the introduction of a so called "reference price" system appears to have had a significant impact on the market shares of five original drugs.
GENUINE SAVING AND POSITIONAL EXTERNALITIES Aronsson, Thomas; Johansson-Stenman, Olof
International economic review (Philadelphia),
November 2017, Letnik:
58, Številka:
4
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Much evidence suggests that people are concerned with their relative consumption. Yet, positional externalities have so far been ignored in savings-based indicators of sustainable development. This ...article examines the implications of relative consumption concerns for measures of sustainable development by deriving analogues to genuine saving when people are concerned with their relative consumption. Unless the positional externalities have been internalized, an indicator of such externalities must be added to genuine saving to arrive at the proper measure of welfare change. We also show how relative consumption concerns affect the way public investment ought to be reflected in genuine saving.
Several previous studies have demonstrated the importance of relative consumption comparisons for public policy. Yet, almost all of them have ignored the role of leisure for status comparisons. ...Inspired by Veblen (The theory of the leisure class. Macmillan, New York, 1899), this paper assumes that people care about their relative consumption and that leisure has a displaying role in making relative consumption more visible, based on a two-type model of optimal income taxation. While increased importance of relative consumption typically implies higher marginal income tax rates, in line with previous research, the effect of leisure-induced consumption visibility is to make the income tax more regressive in terms of ability.
In this paper, we analyze how international capital mobility affects the optimal labor and capital income tax policy in a small open economy when consumers care about relative consumption. The main ...results crucially depend on whether the government can tax returns on savings abroad. If the government can use flexible residence‐based capital income taxes, then the optimal policy rules from a closed economy largely carry over to the case of a small open economy. If it cannot, then capital income taxes become completely ineffective. The labor income taxes must then indirectly also reflect the corrective purpose that the absent capital income tax would have had.
This paper analyzes optimal taxation and risk‐sharing arrangements in an economy with two levels of government. Both levels provide public goods and finance their expenditures via labor income ...taxation, where the tax base is responsive to the private agents' labor supply decisions. The localities are assumed to experience different random productivity shocks, meaning that the private labor supply decision as well as the choices of income tax rates are carried out under uncertainty. Part of the central government's decision problem is then to provide tax revenue sharing between the local governments. The optimal degree of revenue sharing depends on whether or not the localities/regions differ with respect to labor supply incentives.
This paper derives Pareto-efficient provision rules for national and global public goods in a two-country world, where each individual cares about his or her relative consumption of private goods ...compared to other domestic and foreign residents. We contrast these rules with those following from a non-cooperative Nash equilibrium. Both national and global public goods are underprovided in Nash equilibrium under such relative consumption concerns. Finally, when individuals also care about the relative consumption of national public goods, based on between-country comparisons, the optimal provision rule depends on whether or not the national public goods are less positional than private consumption.
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