A note on optimal taxation, status consumption, and unemployment

Existing research on optimal taxation in economies with status-driven relative consumption (implicitly) assumes that there is no involuntary unemployment, despite ample evidence real world labor markets are typically characterized by such unemployment. We show how the marginal tax policy ought to be modified simultaneously account for positional externalities and equilibrium find interaction effects between these two market failures crucial determinants of structure. In certain cases, incentive away vanishes completely, negative may even lead lower taxation, under