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 finding 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 suffcient condition for the latter case.