1. What is Luxury Tax?

Excise taxes are selective taxes on the sale or use of specific goods or activities. (By contrast, a value-added tax or retail sales tax is a general consumption tax that applies to all provisions of goods and services.) Luxury tax is an excise tax that is levied on luxury goods. What are luxury goods? Here I cannot attempt to provide the necessary and sufficient conditions that can regiment the often confusing usages of the term. ^{Footnote 1} For our purposes, luxury goods can be thought of as those items whose utility and price is such that: people, if on a budget, normally forgo them and purchase other items (possibly, their substitutes) and it is usually the rich that can and do buy them. It is not that other people do not want them. If those goods had been cheaper, many more people would probably have purchased and enjoyed them. Presumably, it is due to the diminishing marginal utility of wealth that, for the wealthy, their utility is greater than the disutility of paying the price. They are neither biological necessities that are necessary for survival and natural human functioning, nor social necessities the lack of which means indecency and poverty in the society.Footnote ²

This characterization covers the following paradigmatic examples of luxury taxes: In the United States, the Omnibus Budget Reconciliation Act of 1990 levied a 10% excise tax on such “luxury items” as pricey automobiles, boats, yachts, aircraft, jewellery and furs. (This luxury excise tax was partly repealed by the Revenue Reconciliation Act of 1993.) The People’s Republic of China imposes an extra consumption tax on cosmetics, jewellery, precious stones, large cylinder capacity vehicles, golf products, high-grade wrist watches, and yachts (Interim Regulation of the People’s Republic of China on Consumption Tax 2008 Revision: Article 2 and Appendix). ^{Footnote 3} It also fits with some features that are often associated with luxury goods, such as refined pleasure and replaceability with crude substitutes without much pain. ^{Footnote 4} This definition can be called luxuries in the narrow sense, because luxuries in this sense are a subset of luxuries in the economic sense. Luxuries in the economic sense are those goods and services whose income elasticity of demand e is greater than 1.Footnote ⁵ In this paper, I will examine several arguments that have been or can be made in favour of luxury tax. As we will see, most of them apply best to luxuries in the narrow sense. So, by luxuries, I will mean, unless indicated otherwise, luxuries in the narrow sense. When an argument (e.g., the positional good argument) is meant to apply not only to luxuries in the narrow sense, but to luxuries in the broad, economic sense, I will so indicate. Examining the cogency of those arguments that purport to justify luxury tax will be the task of the remainder of this paper. It leads us to engage with many interesting theoretical issues in the normative analysis of taxation.

2. Is Luxury Tax Justifiable as an Efficient Way of Raising Government Revenue?

One of the reasons why we tax is to raise the government’s revenue and finance its activities. Luxury tax, to be sure, can be a source of government revenue. However, if the goal is to generate revenue and fund the government’s budget, there are alternative tax bases available. Why should we raise revenue by a surtax on luxuries rather than by other kinds of taxes?

3. Is Luxury Tax Justifiable as an Incentive for Consumers to Spend Wisely?

It might be argued that we should tax luxuries to incentivize consumers to spend so as to maximize the value of their consumption. Neutral consumption taxation allows consumers to purchase what they prefer, to satisfy their current preferences within their budget constraint. Consumers of luxury goods take their marginal value to be no smaller than the marginal value of other goods they can purchase. However, the argument goes, luxury customers are mistaken in their evaluation. They fail to consider alternative ways of consuming or overrate the value of luxury goods. As a result, they make themselves worse off. It would be a better use of budget for consumers if non-neutral excise taxation incentivizes them to spend less on luxury goods.

4. Is Luxury Tax Justifiable as a Means to Reduce Wasteful Competition over Positional Goods?

Some goods and services are such that (part of) their value to a consumer depends on other people’s consumption of them. In particular, there are some positional goods whose value decreases as more people consume them. This can be the case when other people’s consumption physically makes them less pleasant or convenient to use (e.g. roads for driving, serene places in nature). Another case is when the consumer, a snob, experiences satisfaction at the fact that (s)he alone consumes them. More interesting are those items that are of value to the consumer as a signal, i.e. by indicating that (s)he possesses some desirable qualities that those who do not consume them lack. As more people consume the signalling goods, their function of distinguishing their possessor from others diminishes. When having a signalling good becomes the norm, not an exception, it loses its value as a status symbol. Indeed, when the majority comes to have a signalling good, those who do not have it can be pressured to follow suit and prove that they are at least as good as others. It becomes a defensive necessity. If everybody has it, it does not signal anything.Footnote ¹⁴

When all countries engage in attempts to have superior military power by spending on weapons acquisition, the arms race does not make any country safer or stronger. As the value of armaments lies mainly in giving the armed country a competitive edge over others, the relative advantages cancel each other out. (Hence, armaments are, while not merely a signal, also a positional good.) The production of weapons is a huge waste of resources that could have been spent on more valuable activities. One might argue that resources spent on producing signalling goods whose meaning is mutually offset by imitative or competitive consumption are similarly wasted in vain. Consumption for competitive signalling, as in the military arms race, can pose a collective action problem: it is in each consumer’s interest to pay for competitive signalling (i.e. its positional advantage is more than worth the cost), given that others also do so. However, when everyone acts in their own interest and tries to outspend others (or avoid being outspent), all of them end up making themselves worse off. If they engage in an escalating series of mutually offsetting expenditures, the positional arms race would absorb and waste a lot of resources.

One might argue that we have reason to surtax luxury goods to curb positional consumption. When the super-rich purchase retail goods and services that are many times more expensive than the average price of their type, their consumption makes the luxury products eminent and tempts those around them to increase spending on luxury or high-end products. If the (merely) rich succumb to the temptation, the imitative consumption shifts the frame of reference that defines high-end or upscale products. When many middle-income households buy the high-end products, they become regular products and no longer bring status and esteem. Ordinary people buy them to avoid status demotion. The time is ripe for another round of what Frank calls ‘expenditure cascades’. This imitating consumption pattern raises community consumption standards and creates social pressure to increase expenditure not to lose face. In order to keep up and maintain the same relative level of consumption, people save less and work longer and harder to earn more. Some middle- and lower-income households spend beyond their means, incur consumer debt, and even go bankrupt. They would be better off if they spend less and devote more time and energy for family, leisure and community life. Luxury tax can help them do so, by discouraging the rich from triggering expenditure cascades. Or so the argument goes (cf. Frank Reference Frank2012: 61–62, 77–79).

In response, let me begin by pointing out that luxury or high-end products are usually of higher quality than basic or primitive products. It is not plausible that luxury goods and services are of no intrinsic value at all. Let us consider some of Frank’s own examples: professional home appliances, clothes, restaurants, houses, cars, travels and hotels. Imagine what these items used to be like several decades ago. While it is true, as Frank emphasizes, that luxury or high-end goods have wasteful aspects, it is hard to deny that their improved quality benefit consumers. For one, charming and beautiful luxury goods and services give their possessors or users novel experiences and positive pleasure. ^{Footnote 15} Sophisticated home appliances (‘techno-luxuries’) make household chores less onerous and time-consuming (e.g. home automation products) and allow us to spend the saved time and energy doing what we value more. (I am not sure whether I could write this paper without them.) Indeed, if luxury goods do not improve consumers’ quality of life at all, it would be hard to explain why they are so widely desired and those who possess them can show them off to others in the first place (cf. Hayek Reference Hayek1961; Lebergott Reference Lebergott1993). True, the degree to which luxury goods are qualitatively better than regular goods, i.e. their marginal value, often seems not worth their hefty price tag. Part of the reason why luxury goods sell might be that the rich engage in status competition through luxury consumption. Ironically, the exorbitant price that rich people pay for new luxury items arguably benefits non-rich people by enabling them to consume what they might not have enjoyed otherwise. Let me explain.

As Frank himself points out, it has been historically the case that much of the new technology embedded in the fine products created by luxury consumption booms soon finds its way into the goods and services consumed by middle- and lower-income families (Frank Reference Frank2000: 44). Innovation is not free. It takes a lot of resources to improve on existing products. Rich people’s expenditure on luxuries funds innovation. The large profit from rich consumers enables companies to undertake costly innovations and cover the upfront costs of generating new product ideas, designs and manufacturing processes. As the generated knowledge diffuses to rival firms, high-end products become more accessible and affordable. Most people end up consuming the improved, now mass-produced products. Indeed, this process through which one-time luxuries become mundane goods and then necessities (e.g. an indoor toilet, a personal computer) is arguably how the quality of (material) life has improved over time (Hayek 1960 [Reference Hayek2011]: 96–102; also see Berry Reference Berry1994: 17–19). One might object that only some luxury goods come to be or help to produce widely used mass products, and many others are merely wasteful extravagance. True, but the government cannot tell in advance which will end up being useful and exempt only those from excise taxation. It would be particularly difficult to predict how technologies used in luxury goods will be adapted and deployed for new products. Suppressing luxury consumption by excise tax might wind up impeding innovation that would ultimately benefit many in society. It may be better for the government to let rich people (unintentionally) subsidize socially beneficial innovation by lavishing their fortune on luxury goods they fancy. It might not be particularly morally significant even if the rich entangle themselves in a wasteful competition with each other and squander their wealth in consumption that does not make themselves much better off. It is presumably their responsibility and, given their wealth, not too big a loss in welfare (Halliday Reference Halliday2016 b: 156–157).Footnote ¹⁶

However, it may be morally problematic if rich people’s luxury consumption exerts undue pressure on non-rich people to follow suit and consume imprudently. Some empirical studies are taken to support this argument. For example, Bertrand and Morse argue that the consumption by rich people causes an increase in the consumption by middle-income and low-income people, in particular their consumption of visible goods and services (Bertrand and Morse Reference Bertrand and Morse2016).Footnote ¹⁷ However, even if their argument is true, it does not necessarily mean that non-rich people engaged in the status competition initiated by rich people and purchased luxury goods that are of no or little intrinsic value to them. To suppose so underestimates non-rich people’s ability to discern what is good for themselves. Presumably, non-rich people are more careful than rich people, in making sure that their purchases are worth the price they pay.Footnote ¹⁸ Their increased expenditure on visible goods and servicesFootnote ¹⁹ might well mean that they found valuable elements in the luxury or high-end products rich people consume and purchased affordable products that are so adapted as to suit their own needs and circumstances. It would not be surprising for there to be companies that develop such improved products, sell them at reasonable prices, benefit non-rich customers, and thrive. In other words, when exposure to rich people’s possession of luxury products leads to non-rich people’s consumption of products of the same or similar category, the following consumption is not necessarily status-seeking. The exposure might have provided useful information as to which products are or can be valuable to non-rich consumers. We are not provided with evidence that that is not the case.

I have argued that rich people’s consumption of luxuries is, even if wastefully competitive, not particularly morally problematic but possibly socially beneficial, and that we do not have sufficient reason to believe that non-rich people’s consumption which rich people’s consumption of luxuries arguably causes is uselessly competitive. One might still argue that we have reason to surtax positional goods, discourage consumption thereof, and reduce wasteful competitive signalling. It would save resources spent in sending mutually cancelling signals. Here, it is worth noting that the waste of positional competition is not a problem specific to luxuries in the narrow sense. If it has to do with luxuries, it has rather to do with luxuries in the broad, economic sense. Expenditures on schooling is a case in point. A high school or college degree is arguably a positional good whose signalling value in the labour market decreases as more people have one.Footnote ²⁰ Schooling at a high school or college is not a luxury in the narrow sense. It is more like a social necessity that non-rich people do and should spend on to prepare for the future. Suppose the positional competition in education gets fierce and the (opportunity) costs make it difficult for the non-rich to afford additional schooling (say, a master’s programme) that provides a competitive edge. The additional schooling is still not a luxury in the narrow sense. When non-rich people decide not to keep up with the positional competition in education, it is hardly a matter of forgoing refined or sophisticated pleasure and settling for simple pleasure; it is not like buying a utilitarian Hyundai instead of an extravagant Ferrari. Hirsch surmised that as people earn more, they would spend a bigger portion of their income on education for a better job, making educational expenditure a luxury good in the broad, economic sense (Hirsch Reference Hirsch1977: 49–50).Footnote ²¹ Empirical studies suggest that while it depends somewhat on the level of household income, the income elasticity of education expenditure is mostly greater than 1 in many countries (Hashimoto and Heath Reference Hashimoto and Heath1995; Kanellopoulos and Psacharopoulos Reference Kanellopoulos and Psacharopoulos1997; Acar et al. Reference Acar, Günalp and Cilasun2016; Acerenza and Gandelman Reference Acerenza and Gandelman2019).

Anyway, it might be argued that expensive schools are a ‘luxury’ that deserves excise tax. Many rich parents pay a large amount of tuition to fancy private schools. A significant reason why they are willing to pay so much is that those schools give their children a competitive edge over other children in the university admissions process and later in the job market. For example, expensive prep schools spend a lot of resources helping their students have a better chance of getting admission to a good university (e.g. providing SAT preparation classes and advanced placement courses). Acceptance to a university, especially a prestigious one, is the way of earning an influential credential that makes its holder appear more talented, disciplined and well-connected than other candidates and puts her ahead of others in the labour market and other areas of life. Rich parents’ expenditure induces other parents to increase spending to keep up, lest their child fall behind. However, the number of credentials that provide relative advantages is, by its very nature, limited. Fierce competition over degrees from prestigious universities incurs costs of signalling that counteract each other and serve no differentiating function. Excise tax on expensive schools can help reduce signalling costs. It would save material resources as well as students’ time and effort, which can be spent for more productive and meaningful purposes. Or so the argument goes.Footnote ²²

Schools help students not only to acquire signals for university admissions and the job market, but also to develop their intrinsic abilities and productive capacities. These two functions of schooling are, while not identical, presumably related. When a school issues a diploma to those who have gained relevant productive capacities through its programme, it may be (part of) the reason why the school’s diploma is a signal in the job market. If a luxury tax reduces people’s expenditure on schooling, the reduction of educational resources is likely to decrease not only wasteful competition but productive learning as well. The non-competitive learning would benefit students (by helping them flourish) and other people (through positive externalities of the students’ productivity).Footnote ²³ Moreover, suppressing expenditures on schooling may simply redirect parents’ desire to confer competitive advantages on their children to a different route. If parents’ desire to give their child a head start in life finds its outlet in another means of competitive signalling, the alternative means of differentiation might absorb more resources and have less non-positional value.Footnote ²⁴ In addition, the luxury tax would make it harder for middle- or low-income parents to send their children to already expensive schools and aggravate social segregation in schooling. Surtaxing does not seem to be the best way of restraining the educational arms race.

The example of schooling is an illustration of what can go wrong in using excise tax to reduce positional externalities. In theory, it is possible for luxury tax to be imposed on positional goods, discourage their consumption, and reduce the waste of positional competition. However, in practice, it may not pan out as intended. Suppose it is somehow known that the consumption of certain luxury goods incurs costs of mutually counteracting signalling. Even if imposing excise tax succeeds in reducing consumption of the positional goods, the reduction in consumption might decrease not only competitive signalling but also their non-positional value. Moreover, if people still have a desire to gain competitive advantage by signalling, the luxury tax may merely reroute the desire toward other positional goods. Insofar as the well-to-do retain the desire to distinguish themselves from others, they would probably purchase different substitute goods to signal distinction. There may not be much reason to expect that the substitutes will be less wasteful. It might merely incur the cost of modifying products so as to avoid the excise tax. Given the uncertainty as to which products deserve luxury tax at which rates, the political process of legislating a luxury tax is likely to cause a fierce battle for preferential treatment (Frank Reference Frank2000: 205–206; DeCicca et al. Reference DeCicca, Kenkel and Liu2013). The luxury tax might end up incurring more costs than benefits.

For these reasons and others, what Frank proposes as a means to reduce the waste of conspicuous luxury consumption is not an excise tax that designates specific goods as luxuries, but a progressive consumption tax that sidesteps the need to do so. He claims that ‘the last dollars spent by those who spend most [which are subject to the highest marginal rate of his progressive consumption tax] are most likely to be spent on luxuries’ that create positional externalities (Frank Reference Frank2012: 76–77). I am not quite sure whether that is the case. One thing is that some goods are not urgently needed and denied priority in consumption. Another thing is whether their consumption leads others to consume in mutually offsetting ways. It is far from clear whether and how they are correlated. Anyway, it is beyond the scope of this paper to examine the justifiability of progressive consumption tax.Footnote ²⁵

Let me sum up this section. I have raised doubts whether the negative positional externalities of education and luxuries in the narrow sense call for excise tax. It does not mean that luxury tax can never be justified as a means to reduce wasteful competition over positional goods. The point is rather that unintended consequences can easily more than offset its intended benefits. Surtaxing a positional good might impair its non-positional (unintended) value, incentivize competition for alternative means of distinction, and cause other side effects. Before imposing excise tax on a positional good to reduce futile positional competition, we should ask the following questions: Wouldn’t it undermine the good’s non-competitive benefits? Wouldn’t it give rise to another positional competition? Wouldn’t the substitute competition be more wasteful? Isn’t there a better policy, say regulation rather than taxation, that can control positional competition? It may not be easy to predict how a luxury tax would affect people’s positional competition. It may differ from society to society, and from time to time. Imposing a luxury tax that does more good than harm, even if possible, seems like a tricky task.

5. Is Luxury Tax Justifiable as a Means to Maintain Social Norms Against Wealth-Displaying Consumption? The Expressive Function of Luxury Taxation

It has been argued that laws serve expressive functions. The hard treatment of punishment expresses the community’s condemnation or denunciation of the criminal and his act (Feinberg Reference Feinberg1965). Tort establishes that the defendant wronged the plaintiff and vindicates the rights and social standing of the latter (Hershovitz Reference Hershovitz2017). Along similar lines, surtaxing luxury goods can be a means to publicly express disapproval of ostentatious consumption of the taxed items. To be sure, luxury taxation does not mean that consuming luxuries is an impermissible wrong. Luxury consumption is neither prohibited nor subject to a fine that carries the moral judgement that the fined activity is wrong. The surtax on luxuries is a fee that allows those who want to purchase them are authorized to do so if they are willing to pay the surcharge.Footnote ²⁶ Still, luxury taxation might as well be understood as expressing the message that consuming the taxed items is, while legitimate, not to be socially admired, let alone worshipped. There can be some items the consumption of which is, rightly or wrongly, taken to assert superiority over other people who cannot afford them. When luxury taxes are imposed on those items properly, they can serve to rebut the assertion or claim of superiority. Luxury taxation can help to sustain the shared understanding that possession of luxury goods – for that matter, any commodity – is not a universally approved standard of social esteem or status. It can help to maintain the social norm that ostentatious consumption of luxuries is rather to be frowned upon and that the ability to afford the expensive goods and the wealth it is taken to represent are not to be shown off to fellow citizens.Footnote ²⁷

It is not desirable for a society and people in it that wealth is the major basis of esteem. Wealth is a one-dimensional measure that ranks all members of society from richest to poorest. If wealth is the main grounds for esteem, people’s pursuit of esteem degenerates into a zero-sum game. They would enjoy more esteem overall if different people garner esteem along different dimensions in which they excel and about which they care (Scitovsky Reference Scitovszky1976: 118–120; McAdams Reference McAdams1992: 50–51). It would contribute to a good relationship if one enjoys and appreciates the other’s excellences and the appreciation motivates the latter to do better, and vice versa. In liberal democratic societies, there is no official, state-sponsored standard of social esteem to which everyone is expected to defer. In principle, different people can have different views about what entitles its possessor to earn honour and esteem (Anderson Reference Anderson2008). However, in many democracies, wealth is a de facto symbol of status and source of social division and disharmony. When conspicuous luxury consumption makes wealth salient as a basis of comparison and draw disproportionate attention, it is likely to crowd out other dimensions of esteem.Footnote ²⁸ Moreover, since how rich a person is is not what he should be held fully responsible for but rather is subject to luck, wealth is not an accurate measure of esteem-worthiness in the first place.Footnote ²⁹ By sustaining social norms against ostentatious consumption of luxuries and making wealth less salient and disruptive to social cohesion and harmony, taxation on luxuries can contribute to the quality of relationships among citizens and the health and welfare of society. Or so the expressivist argument for luxury taxation goes.

How can luxury taxation help to create and sustain social norms against ostentatious consumption of luxuries? The existence of luxury taxes, in a democratic society, publicly indicates that people in general are not favourable to the (ostentatious) consumption of the taxed items.Footnote ³⁰ Suppose an individual citizen personally thinks of luxury consumption as crass, vulgar and distasteful and disapproves of pretentious luxury consumption. He might keep the opinion to himself and refrain from gossiping negatively about luxury consumption, for fear that his disfavour would not be shared, or worse, taken to be mere sour grapes and jealousy. Luxury taxation might help him overcome the fear by leading him to think that his fellow citizens are of much the same mind. People express their disapproval more openly and find other people who agree with them. As a result, more and more people acquire, mutually recognize one another as having, and take themselves to be justified in having, negative beliefs and attitudes about ostentatious luxury consumption. Luxury taxation also gives luxury consumers reason to expect that if they boast their consumption, they will probably encounter disapproval rather than admiration. The expectation may lead them to be less conspicuous in luxury consumption. As fewer people show off their luxury consumption, those who do stick out and receive greater disapproval.Footnote ³¹ Fewer and fewer dare to show off, which reinforces the social understanding that the ability to afford luxury goods and wealth in general are not to be shown off. In sum, luxury taxation, by publicly signalling the society’s general disapproval of ostentatious luxury consumption, can help to generate more disapproval of ostentatious luxury consumption, the belief that ostentatious luxury consumption is inappropriate, the belief that it is widely regarded as inappropriate, second-order approval of disapproving ostentatious luxury consumption, and the expectation that it will be met with disapproval. These beliefs and attitudes are constituents of social norms against ostentatious luxury consumption.Footnote ³²

It may be worth distinguishing the expressive argument in favour of luxury taxation that I have just put forward from the positional good argument that I critically examined in the previous section. The positional good argument was that rich people’s consumption of a signalling good for distinction causes other people’s emulative consumption and makes the signalling good cease to be a symbol of distinction. The costs of mutually offsetting signalling make everyone worse off, by absorbing time and resources that could have been spent for better purposes. So the rate of luxury tax (or of the progressive consumption tax that Frank proposes in its place) should be so substantial as to change or suppress people’s consumption behaviour as a financial disincentive. By contrast, my expressive argument focuses on the effect of luxury taxation on people’s attitudes of (dis)approval and social norms. What discourages ostentatious consumption is not the additional money consumers have to pay, but the social norm that the tax law (purportedly) elicits or sustains. Its rate need only be such as to clearly indicate the public attitude toward ostentatious luxury consumption and trigger attitudinal and doxastic reactions. It can help, I argue, to improve the relationship among citizens and the welfare of society, by directing people’s attention and esteem to non-monetary or less monetary achievements.

I have suggested a social psychological mechanism by which taxation on luxuries can be valuable to a society. However, I do not mean to exaggerate the extent to which the socio-psychological mechanism works as described. The argument is not that luxury tax always or reliably results in such a desirable outcome. How luxury tax affects the social norms and meaning of luxury consumption is contingent on various factors, including people’s sense of the tax law’s meaning and legitimacy, their evaluative attitudes toward luxury consumption and (display of) wealth, and the dynamic interaction of these variables and others. For example, if there already exists strong, robust and mutually recognized disapproval of ostentatious luxury consumption in the society, luxury tax would be unnecessary. In fact, luxury tax might weaken the normative motivation not to show off wealth and undermine an existing social norm against ostentatious consumption when it leads people to believe that they can show off as long as they pay the tax (i.e. when tax payment is taken to justify ostentation). On the other hand, if people in general regard the consumption of luxuries as a symbol of social status, luxury tax might encourage people merely to change the commodities that they take to be the symbol of wealth and status. Or, if luxury tax is imposed on the items the consumption of which is democratized and no longer regarded as affordable only by a few, it would seem irrelevant and be merely inefficient. ^{Footnote 33} In order for luxury tax to serve a desirable expressive function (i.e. to contribute to the formation and maintenance of social norms against ostentatious luxury consumption), it should be imposed on the right products, in the right way, and under the right circumstances. However, it might not be easy for a government to properly individuate and identify objects of conspicuous consumption (i.e. those items that draw people’s attention to the wealth of their possessors and crowd out other dimensions of social esteem). In this dynamic era when new products proliferate and trends change fast, by the time the government identifies a certain product as an object of conspicuous consumption, it might no longer be a fashionable symbol of pecuniary strength. It may be that many middle-incomers are consuming the ‘luxuries’ not to show off, but just to enjoy themselves with high-quality products. The often-erratic dynamics of social esteem and our limited knowledge thereof also make it difficult to predict and exploit the expressive effect of luxury taxation.Footnote ³⁴

The problem is not only that luxury tax may not do the expressive trick as intended, but also that it is liable to abuse. Luxury tax might be imposed, not in order to form and maintain the social norm against ostentatious consumption, but simply on the basis of an existing social norm against the taxed items. In that case, luxury tax is levied on what I call populist grounds: the disfavour or ill will of the society (or the majority thereof) against their consumption. Or worse, in an authoritarian society, the government might use luxury tax to promote ill will or hatred against the rich for its political advantage. When the government or the majority has the right to discourage the consumption of those goods that they do not like by taxation, a coercive apparatus of the state, the social environment would be too oppressive for individuals to cultivate tastes and preferences freely and try new lifestyles. Populist or authoritarian taxation on luxuries is hardly compatible with the social atmosphere in which individuals can conduct experiments in living without being concerned about censorship. ^{Footnote 35} I do not mean that luxury goods consumption is the main, let alone the only, way in which new lifestyles are pursued and developed. I believe and hope that there are other less or non-commercial venues through which alternative forms of living emerge and develop. At the same time, it is hard to deny that the luxury goods market is one of the most vibrant spheres in which new modes of living are experimented with, and that is the case for a reason. In societies with developed market economies, it is a place where entrepreneurs can find customers who can afford expensive goods and services the innovation of which costs a lot, and have the incentive to try new products that would appeal, at least initially, to only a small number of people (e.g. commercial space travel). Their experiment might yield discovery of novel products that spread in the society and enrich people’s lives. Luxury tax might hinder individual and social progress by reducing room for experiments in living.

Let me sum up this section. Luxury tax is justifiable when it helps to create and sustain social norms against conspicuous consumption that displays wealth. However, as is the case with luxury tax that purports to curb positional consumption, it is possible to fail in many ways. Before imposing luxury tax to strengthen social disapproval of ostentatious consumption, the following questions are worth considering: Isn’t the list of luxuries to be taxed outdated? Wouldn’t the tax merely make people purchase other products for ostentation? Wouldn’t it be taken to mean that conspicuous luxury consumption is permissible on condition of paying the tax and undermine the existing norm against displaying wealth? Wouldn’t it penalize the consumption of what the government or the majority dislikes and restrict the freedom to consume and experiments in living? Isn’t there a more efficient way of promoting social norms against ostentatious consumption (e.g. media campaigns that disclose and disseminate information about people’s general disapproval of conspicuous luxury consumptionFootnote ³⁶ )? Would it help to achieve the goal of building a social norm against ostentatious consumption, to clarify and share the meaning of luxury tax through public deliberation? The answers to these questions would depend not only on the rate and objects of taxation, but also on many uncertain and unpredictable factors. There is no simple recipe for success. It will take research, ingenuity and luck to use luxury tax properly to form and maintain social norms against wealth-displaying consumption.