Optimal Taxation, Social Preferences and the Four Worlds of Welfare Capitalism in Europe

Abstract

Drawing on the formal setting of optimal taxation theory, this paper identifies the degree of Rawlsianism (poverty aversion) exhibited by European social planners, beginning with the observation of actual data and redistribution systems. The paper contributes to the comparative research on the structure and typology of welfare capitalism. The social preferences implicit in tax‐benefit systems are recovered by inverting the optimal taxation model for all European countries using European Union Statistics on Income and Living Conditions data. The results are discussed in light of the four worlds of welfare capitalism classification proposed by Esping‐Andersen.