Is there a health-status race in Australia whereby people get joy from being healthier and fitter than others? And what are the general implications for public policy if there is? My PhD student Redzo Mujcic and myself brought out a new working paper recently on how a health status race can be good for the public purse and furthermore reduces the case for taxing work in order to give people an incentive to take more leisure time.
We present a simple model of status-seeking over multiple socioeconomic domains by introducing the concept of conspicuous health as an argument in the utility function, in addition to the well-established conspicuous consumption term. We explore the implications of such a utility function for optimal income taxation, where we show an increase in concerns for conspicuous health to have an opposite effect on the marginal tax rate, compared to an increase in concerns for conspicuous consumption. Using life satisfaction panel data from Australia, along with an improved measure of exogenous reference groups (that accounts for the time-era of respondents), we find evidence of a comparison health effect.