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Subjective well-being, consumption comparisons and optimal income taxation

Research output: Contribution to journalArticle

DOI

Open Access Status

  • Embargoed (until 23/11/19)

Author(s)

Sean Slack, David Ulph

School/Research organisations

Abstract

We introduce reference consumption into the standard utility function from optimal tax analysis. Individuals compare their consumption “narrowly” with those of the same productivity, or “broadly” with the average consumption across society. In both narrow and broad equilibria reference consumption is an increasing function of the tax parameters, so generating new theoretical results. Individual well-being decreases with the net wage (net-of-tax) rate for low productivity workers under narrow (broad) comparisons, thus adjusting redistributive taxation considerations. Further, in both cases reference consumption distorts labor supply away from the social optimum level, giving a distortion-correcting role for taxation.
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Details

Original languageEnglish
Pages (from-to)455-476
JournalJournal of Public Economic Theory
Volume20
Issue number4
Early online date23 Nov 2017
DOIs
Publication statusPublished - Aug 2018

    Research areas

  • Optimal income taxation, Relative consumption, Well-being

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