Why Status Effects Need not Justify Egalitarian Income Policy

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Abstract

Economic research overwhelmingly shows that the utility individuals derive from their income depends on the incomes of others. Theoretical literature has proven that these status effects imply a more egalitarian income policy than in the conventional case, in which people value their income independently from the income of others. This article qualifies this conclusion in three ways. First, this policy implication holds if low income groups are sensitive to status, but not if high income groups are predominantly so. Neither do status effects provide an economic rational for egalitarian income policy if they only pertain to peer groups with similar income levels. Third, if status effects are grounded in vices like envy, jealousy, grudgingness or spite, a moral basis for egalitarian income policy is lacking, because distributive justice cannot be based on perverse preferences.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages19
Volume2010-73
Publication statusPublished - 2010

Publication series

NameCentER Discussion Paper
Volume2010-73

Keywords

  • relative income
  • positional goods
  • optimal taxation
  • egalitarian income policy
  • redistribution
  • status effects
  • envy

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