Conspicuous consumption is the spending of money on and the acquiring of luxury goods and services to publicly display economic power — either the buyer's income or the buyer's accumulated wealth. Sociologically, to the conspicuous consumer, such a public display of discretionary economic power is a means either of attaining or of maintaining a given social status. Moreover, invidious consumption, a more specialized sociologic term, denotes the deliberate conspicuous consumption of goods and services intended to provoke the envy of other people, as a means of displaying the buyer's superior socio-economic status. As sociologic theory, conspicuous consumption proposes that the public display of discretionary buying power, either as income or as accumulated wealth, does not provide direct utility to the man or the woman behaving thus, unlike the consumption of food and shelter, necessary commodities which do provide direct utility — physical and psychological satisfaction — to the buyer. A luxury tax applied to goods and services that are considered commodities for conspicuous consumption is a type of progressive sales tax that internalizes the negative externality associated with the conspicuous consumption of positional goods.[23] In which case, the externality is associated with the loss of status suffered by people whose stock of high-status (positional) goods is diminished, in relation to the stocks of other conspicuous consumers, as they increase their consumption of such goods and services; effectively, status-seeking is a zero-sum game — by definition, the rise of one person in the social hierarchy can occur only at the expense of other people. Therefore, collectively, expenditure on luxury goods and services (positional goods) is an economic loss, like competitive military spending (an arms race) — wherein each country must match the military expenditures of other countries in the arms race, or suffer a loss of relative military power. In the case of conspicuous consumption, taxes upon luxury goods diminish societal expenditures on high-status goods, by rendering them more expensive than non-positional goods. In this sense, luxury taxes can be seen as a form of market failure correcting Pigovian tax- with alleged negative deadweight loss they are a more efficient mechanism for raising revenue than ordinary 'distorting' labor or capital taxes.[24] This economic case for the taxation of positional, luxury goods has a long history; in the mid-19th century, in Principles of Political Economy with some of their Applications to Social Philosophy (1848), John Stuart Mill said that: I disclaim all asceticism, and by no means wish to see discouraged, either by law or opinion, any indulgence which is sought from a genuine inclination for, any enjoyment of, the thing itself; but a great portion of the expenses of the higher and middle classes in most countries . . . is not incurred for the sake of the pleasure afforded by the things on which the money is spent, but from regard to opinion, and an idea that certain expenses are expected from them, as an appendage of station; and I cannot but think that expenditure of this sort is a most desirable subject of taxation. If taxation discourages it, some good is done, and if not, no harm; for in so far as taxes are levied on things which are desired and possessed from motives of this description, nobody is the worse for them. When a thing is bought not for its use but for its costliness, cheapness is no recommendation.

• published: 12 Nov 2013
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