Solutions
In the case of conspicuous consumption, taxes upon luxury goods diminish societal expenditures on high-status goods, by rendering them more expensive than non-positional goods. In this sense, luxury taxes can be seen as a Pigouvian tax correcting market failure—with an apparent negative deadweight loss, these taxes are a more efficient mechanism for increasing revenue than 'distorting' labour or capital taxes.[60] A luxury tax applied to goods and services for conspicuous consumption is a type of progressive sales tax that at least partially corrects the negative externality associated with the conspicuous consumption of positional goods.[61] In Utility from Accumulation (2009), Louis Kaplow said that assets exercise an objective social-utility function, i.e. the rich man and the rich woman hoard material assets, because the hoard, itself, functions as status goods that establish his and her socio-economic position within society.[62] When utility is derived directly from accumulation of assets, this lowers the dead weight loss associated with inheritance taxes and raises the optimal rate of inheritance taxation.[63]
In place of luxury taxes, economist Robert H. Frank proposed the application of a progressive consumption tax; in a 1998 New York Times article, John Tierney said that as a remedy for the social and psychological malaise that is conspicuous consumption, the personal income tax should be replaced with a progressive tax upon the yearly sum of discretionary income spent on the conspicuous consumption of goods and services.[64] Another option is the redistribution of wealth, either by means of an incomes policy – for example the conscious efforts to promote wage compression under variants of social corporatism such as the Rehn–Meidner model and/or by some mix of progressive taxation and transfer policies, and provision of public goods. When individuals are concerned with their relative income or consumption in comparison to their peers, the optimal degree of public good provision and of progression of the tax system is raised.[65][66][67] Because the activity of conspicuous consumption, itself, is a form of superior good, diminishing the income inequality of the income distribution by way of an egalitarian policy reduces the conspicuous consumption of positional goods and services.
The economic case for the taxation of positional, luxury goods has a long history; in the mid-19th century, in Principles of Political Economy with some of their Applications to Social Philosophy (1848), John Stuart Mill said:
In the case where conspicuous consumption mediates a link between inequality and unsustainable borrowing, one suggested policy response is tighter financial regulation.[70][71]
"Conspicuous non-consumption" is a phrase used to describe a conscious choice to opt out of consumption with the intention of sending deliberate social signals.[72][73]
