How Much Do We Care About Absolute Versus Relative Income and Consumption?

Alpizar, Francisco,1974Gothenburg University,Göteborgs universitet,Institutionen för nationalekonomi med statistik, Enheten för miljöekonomi,Department of Economics, Environmental Economics Unit (author)

We find, using survey-experimental methods, that most individuals are concerned with both relative income and relative consumption of particular goods. The degree of concern varies in the expected direction depending on the properties of the good. However, contrary to what has been suggested in the previous literature, we find that relative consumption is also important for vacation and insurance, which are typically seen as non-positional goods. Further, absolute consumption is also found to be important for cars and housing, which are widely regarded as highly positional. Implications for Pareto-efficient taxation are illustrated using the results from the experiment.

Carlsson, Fredrik,1968Gothenburg University,Göteborgs universitet,Institutionen för nationalekonomi med statistik, Enheten för miljöekonomi,Department of Economics, Environmental Economics Unit(Swepub:gu)xcarfr (author)
Johansson-Stenman, Olof,1966Gothenburg University,Göteborgs universitet,Institutionen för nationalekonomi med statistik, Enheten för miljöekonomi,Department of Economics, Environmental Economics Unit(Swepub:gu)xjohol (author)
Göteborgs universitetInstitutionen för nationalekonomi med statistik, Enheten för miljöekonomi (creator_code:org_t)

By the author/editor: Alpizar, Francis ...; Carlsson, Fredri ...; Johansson-Stenma ...

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