Economist Robert Frank and others suggest that some goods are “positional.” In other words, their value comes largely from their relative desirability, such as the best house in the neighborhood, the newest car, the largest yacht. Frank contends that such goods result in a wasteful “arms race” of spending and that taxation of these goods would reduce the inefficiencies of the market and reduce income inequality.
a. If happiness derives from position rather than absolute quantity of income, how would a tax that makes income more equal be likely to affect happiness?
b. If Frank’s claims are correct, how would a tax on positional goods change the standard of living?