Browsing by Subject "Utility Interdependence"

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    Essays on redistribution
    (2009-07) Samano-Penaloza, Daniel
    Optimal tax theory has difficulty rationalizing high marginal tax rates at the upper end of the labor income distribution. For instance, in order to obtain positive asymptotic marginal taxes, Diamond (1998) and Saez (2001) need to consider a very particular functional form describing the labor earnings distribution's upper tail. In chapter one, I construct a model of optimal income taxation in which agents display jealousy toward the consumption of others. I derive a simple expression for optimal taxes that accommodates consumption externalities within Mirrlees (1971) framework. I show that only a moderate amount of jealousy toward the rich is sufficient to rationalize the observed labor income taxes in the United States and the United Kingdom. My estimations indicate that the progressivity of actual tax schedules may be highly driven by corrective considerations, particularly at the top of the income distribution. In chapter two, I extend the Mirrlees (1971) framework to incorporate positional goods, that is, goods that are valued relative to other agents' consumption of the same good. Under reasonable parameters describing the magnitude of positional considerations a society may have, my numerical calculations show that a linear tax imposed on the consumption of the positional good is by no means negligible and induces large distributional effects.