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Veblen’s theory of the leisure class revisited: implications for optimal income taxation

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Abstract

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.

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Authors and Affiliations

  1. Department of Economics, Umeå School of Business and Economics, Umeå University, 90187, Umeå, Sweden

    Thomas Aronsson

  2. Department of Economics, School of Business, Economics and Law, University of Gothenburg, 40530, Göteborg, Sweden

    Olof Johansson-Stenman

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  1. Thomas Aronsson
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  2. Olof Johansson-Stenman
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Correspondence to Thomas Aronsson.

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Aronsson, T., Johansson-Stenman, O. Veblen’s theory of the leisure class revisited: implications for optimal income taxation. Soc Choice Welf 41, 551–578 (2013). https://doi.org/10.1007/s00355-012-0701-3

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  • DOI: https://doi.org/10.1007/s00355-012-0701-3

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