The United States and other wealthy democracies during the past century have rarely responded to rising economic inequality by enacting more progressive tax policies, according to a new study co-authored by Yale political scientist Kenneth Scheve.
The study, published in the journal Comparative Political Studies, provides evidence that a widespread belief among voters that government should treat all citizens equally regardless of economic advantage or disadvantage helps explain why countries often do not raise tax rates on the rich in response to rising inequality. The findings are based on survey experiments in the United States, United Kingdom, and Germany.
“Progressive taxation is a powerful policy tool for responding to rising inequality, but we found that wealthy democracies don’t resort to it very often,” said Scheve, the Dean Acheson Professor of Political Science and Global Affairs in Yale’s Faculty of Arts and Sciences. “We identify belief in equal treatment norms — the idea that governments should treat people equally — as a key driver of reluctance to enact progressive tax policies. Many people perceive taxing the rich at higher rates than others as a violation of this norm.”
For the study, Scheve and coauthor David Stasavage of New York University first analyzed data on the historical relationship between economic inequality and taxes levied on the wealthy over the last century in 17 countries, including the United States, Canada, Japan, Australia, New Zealand, and a dozen European democracies. They found that, with few exceptions, rising inequality has not caused a shift to more progressive tax policies.
There are several potential reasons why governments are hesitant to levy higher taxes on the wealthy, Scheve said. A prominent narrative in the United States is that wealthy special interests exert an outsized influence on politics, which prevents lawmakers from enacting progressive tax policies.
“Surely, there is something to that idea, but we also see a reluctance to embrace progressive tax policies in wealthy democracies where money doesn’t play as big of role in politics than is the case in the United States, so it probably isn’t the whole story,” said Scheve, a faculty member at Yale’s Jackson School of Global Affairs.
People hold a range of views concerning political equality and what constitutes a fair tax system, Scheve noted. Many argue that achieving equality of outcomes should drive policy. Others believe that a fair tax system considers whether people achieved their wealth because they worked harder than others. The study focuses on arguments for equal-treatment fairness norms: the notion that just as all citizens should have the same vote in a democracy or the same equal protection before the law, they should also pay the same tax rate.
In addition to the analysis of historical trends, the researchers fielded surveys in Germany and the United Kingdom to measure people’s commitment to the belief that government should treat citizens equally and how that belief relates to their tax policy preferences. The surveys — which involved representative samples of 2,100 people in Germany and 1,913 in the United Kingdom — both found that stronger beliefs in equal treatment predicted a preference for less progressive tax policies. They also showed that people who strongly support the equal treatment norm also frequently expressed concerns about inequality in their countries, but they do not believe that progressive taxation is an appropriate tool to address it.
In a separate survey experiment conducted in the United States, on a representative sample of 1,000 people, the researchers repeated the same questions but included a twist: They randomly assigned a portion of respondents to a treatment group in which they were presented a proposed reform that would weight people’s votes based on their level of education — a clear violation of the democratic equality principle of one person, one vote.
The purpose of this experiment was to show whether support for equal-treatment norms drives preferences for less progressive tax policy; it’s possible, the researchers say, that people adopt equal-treatment beliefs to justify their opposition to higher taxes on the rich, while the reasons could be more related to self-interest or concerns about economic efficiency. As in the United Kingdom and Germany, the U.S. survey demonstrated that views on equal-treatment norms predict people’s preferences for less progressive tax policies even if rising inequality troubles them. Respondents exposed to the proposal for weighted voting became more committed to equal-treatment beliefs and more likely to oppose progressive taxation, demonstrating a causal relationship between the support for equal-treatment norms and opposition to progressive taxation.
“It’s clear that many voters have a vision of political equality based on equal-treatment norms that opposes progressive tax policies,” Scheve said. “It could be that enough voters hold this view that it prevents a consensus to address inequality by increasing taxes on higher incomes and wealth from forming.”
His research focuses on inequality and redistribution; the politics of globalization, the social and political consequences of long run economic change; and climate politics.