This paper studies the optimal taxation between luxury and necessity goods. We set up a three-production-sector neoclassical growth model with inelastic labor supply, and analyze the tax incidence. We find that the two consumption taxes are neutral to economic growth and that the welfare...

In an economy where the time preference rate is sufficiently decreasing in individual consumption, Chen and Hsu (2007) find that a consumption admiration effect can be a source of local indeterminacy, whereby average consumption flows exert a positive external effect on an individual's utility....