Why Are Taxes So High in Egalitarian Societies?

Abstract

In an analysis of the relative income, or relative consumption, hypothesis, it is shown that if the ratio of agent i's consumption to agent j's consumption enters into the utility function, a tax on labor income may increase welfare for all agents. If pretax wage inequality is low, all agents will unanimously be in favor of such a tax. Thus there will be a tendency for taxes to be high in societies where pretax wage inequality is low. Copyright 1995 by The editors of the Scandinavian Journal of Economics.