It is widely acknowledged that the quest for social status can result in an inefficient consumption ”rat-race” and the existing literature has discussed how taxes can mitigate the associated externalities. We suggest a new reason to tax conspicuous consumption. Our paper highlights that taxing status goods can achieve a more equitable distribution of welfare by compressing the status distribution. By curbing the conspicuous consumption of the wealthy, the government renders signaling less informative and increases the share of the social status surplus derived by the less wealthy. This ”status channel” serves as a complement to traditional monetary channels of redistribution.
Spencer Bastani, Institute for Evaluation of Labour Market and Education Policy (IFAU); Research Institute of Industrial Economics (IFN).
Tomer Blumkin, Department of Economics, Ben Gurion University.
Luca Micheletto, Department of Law, University of Milan, and Dondena Centre for Research on Social Dynamics and Public Policy, Bocconi University.