Taxation and the Worlds of Welfare

Posted: 30 Jun 2009

See all articles by Monica Prasad

Monica Prasad

Northwestern University

Yingying Deng

affiliation not provided to SSRN

Date Written: July 2009

Abstract

We use Luxembourg Income Study (LIS) data to compare the progressivity of the tax structure in the USA and Europe. LIS data allow a comparison of tax rates that attempts to take different starting rates, thresholds and exemptions into account. Our study supports the argument others have made that the USA has more progressive taxes than the European countries. However, we find that Britain's tax structure is more regressive than those of the continental welfare states, making the mapping of tax structure onto the ‘three worlds of welfare’ imperfect. We also show that it is a mistake to assume that income and property taxes are always progressive: regressive examples of both are common in the data. But sales taxes are regressive wherever they are found, and we suggest that the proportion of tax revenue raised through sales taxes can serve as an index of overall progressivity in situations where the detailed data examined here are not available. We close by outlining several possible explanations for the inverse correlation between tax progressivity and welfare state effort.

Keywords: taxation, welfare state, capitalist systems, H22 taxation, incidence, P51 comparative analysis of economic systems, I38 provision and effects of welfare programs

Suggested Citation

Prasad, Monica and Deng, Yingying, Taxation and the Worlds of Welfare (July 2009). Socio-Economic Review, Vol. 7, Issue 3, pp. 431-457, 2009, Available at SSRN: https://ssrn.com/abstract=1425973 or http://dx.doi.org/mwp005

Monica Prasad (Contact Author)

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Yingying Deng

affiliation not provided to SSRN

No Address Available

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