Diversity Taxes

61 Pages Posted: 18 Jun 2019 Last revised: 9 Jan 2024

See all articles by Saumya Deojain

Saumya Deojain

Thapar School of Liberal Arts and Sciences; Center for Economic Research, University of Rochester

David Lindequist

Miami University - Department of Economics

Date Written: July 1, 2019

Abstract

The sociological literature suggests that within diverse communities, individuals create externalities on each other when they express their identity through the consumption of market goods. We present a model in which local governments use taxation and individuals adjust their social networks to address these identity expression externalities. We find that taxation and network adjustments act as strategic complements or substitutes, depending on individuals’ preferences for out-group identity expression. Taxes imposed to regulate identity expression externalities amplify the network response to changes in diversity. We analyze US city data on ethnic diversity, taxation, and segregation as outcomes influenced by identity expression externalities.

Keywords: diversity, externalities, taxation, social networks, identity economics

JEL Classification: D62, Z18, H71, R51

Suggested Citation

Deojain, Saumya and Lindequist, David, Diversity Taxes (July 1, 2019). Available at SSRN: https://ssrn.com/abstract=3401377 or http://dx.doi.org/10.2139/ssrn.3401377

Saumya Deojain (Contact Author)

Thapar School of Liberal Arts and Sciences ( email )

Thapar School of Liberal Arts and Sciences
Thapar Institute of Engineering and Technology
Patiala, Punjab 147004
India

Center for Economic Research, University of Rochester ( email )

Harkness Hall
University of Rochester
Rochester, NY 14627-0158
United States

David Lindequist

Miami University - Department of Economics ( email )

83 N Patterson Ave
Oxford, OH 45056
United States

HOME PAGE: http:///www.david-lindequist.com/

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