Bling Bling Taxation and the Fiscal Virtues of Hip Hop

The paper extends Ng’s (1987) model of optimal taxation of diamond goods — goods that are valued solely for their costliness. We extend his findings by analyzing how other goods should be taxed in the presence of pure diamond goods; modified Ramsey rules are derived in a basic single-type model as well as in a two-type model with redistribution. One key finding, that may be surprising and rather provoking, is that close complements (hip hop music) to diamond goods (bling bling) should be heavily subsidized.