Tax Policy Under Keeping up with the Joneses and Imperfectly Competitive Product Markets
نویسنده
چکیده
This paper examines the optimal (first-best) tax policy in a stochastic representative agent model that exhibits a “keeping up with the Joneses” utility function and imperfectly competitive product markets. We show that the optimal labor tax is a constant, whose sign is determined by the relative strength of consumption externality and monopoly power. Moreover, the optimal capital tax is unambiguously negative and affects the economy countercyclically. Hence, models with capital accumulation, imperfect competition, and “keeping up with the Joneses” preferences call for traditional Keynesian demandmanagement policies that are designed to mitigate business cycle fluctuations.
منابع مشابه
Tax Policy Under Keeping Up with the Joneses and Imperfect Competition∗
This paper examines the optimal (first-best) fiscal policy in a stochastic, infinite-horizon representative agent model that exhibits a “keeping up with the Joneses” utility function and imperfectly competitive product markets. We find that the optimal labor tax is a constant, whose sign is determined by the relative strength of consumption externality and monopoly power. Moreover, the optimal ...
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