Show simple item record

Files in this item

Thumbnail

Item metadata

dc.contributor.authorUlph, David
dc.contributor.authorSlack, Sean Edward
dc.date.accessioned2016-11-23T17:30:20Z
dc.date.available2016-11-23T17:30:20Z
dc.date.issued2016-11-23
dc.identifier.citationUlph , D & Slack , S E 2016 ' Subjective well-being, peer comparisons and optimal income taxation ' School of Economics and Finance Discussion Paper , no. 1614 , University of St Andrews , St Andrews .en
dc.identifier.issn0962-4031
dc.identifier.otherPURE: 247759873
dc.identifier.otherPURE UUID: c0d1eb9a-28fc-420c-bc57-e86ff91aa98f
dc.identifier.otherORCID: /0000-0003-3171-1270/work/59464505
dc.identifier.urihttps://hdl.handle.net/10023/9871
dc.description.abstractEmpirical evidence suggests that an important determinant of subjective well-being is how an individual’s consumption compares with that of their immediate peers. We introduce peer comparisons into the standard optimal tax framework and demonstrate that the optimal linear tax expression is adjusted in three key ways, the latter two of which are novel to this paper and act to lower the tax rate. First, the dependence of well-being on peer income introduces an externality that distorts labour supply above that which individuals would choose were they to recognise the interplay between their own choices and the Nash equilibrium level of peer consumption. The optimal tax rate is adjusted upwards to (partially) correct this distortion. Second, if individual labour supply is a function of peer consumption, there are ‘Keeping up with the Joneses’ multiplier effects that raise the Nash compensated labour supply elasticity above the individual labour supply elasticity. This implies a lower tax rate on efficiency grounds. Third, Nash indirect well-being is decreasing in the wage rate for workers with wages close to the reservation wage. To the extent that this lowers the covariance between gross earnings and the net social marginal value of income, this will act to lower the optimal tax rate.
dc.format.extent36
dc.language.isoeng
dc.publisherUniversity of St Andrews
dc.relation.ispartofseriesSchool of Economics and Finance Discussion Paperen
dc.subjectOptimal taxationen
dc.subjectRelative consumptionen
dc.subjectSubjective well-beingen
dc.subjectHB Economic Theoryen
dc.subjectH Social Sciencesen
dc.subject.lccHBen
dc.subject.lccHen
dc.titleSubjective well-being, peer comparisons and optimal income taxationen
dc.typeWorking or discussion paperen
dc.description.versionPublisher PDFen
dc.contributor.institutionUniversity of St Andrews. School of Economics and Financeen
dc.identifier.urlhttps://ideas.repec.org/p/san/wpecon/1614.htmlen


This item appears in the following Collection(s)

Show simple item record