Redistribution and the Notion of Social Status

In this paper we study the impact of redistributive policies when agents can signal their relative standing by spending on a conspicuous good. In particular, we analyze how the shape of the status function (i.e. how relative standing is computed and evaluated) may affect the equilibrium outcome of the model. Our main nding is that, if status depends in a cardinal way on individuals' relative standing, then a redistribution from the rich to the poor can be Pareto improving. We identify a necessary and sucient condition for the latter case.