The Dynamic Stability of Progressive Taxation
8 Pages Posted: 8 Jan 2018 Last revised: 2 Feb 2018
Date Written: January 1, 2017
The optimality of progressive taxation is influenced by various factors including elasticities of response, taxpayers’ ability to hide income, the technology of government enforcement, et cetera. In Taxing the Rich, Scheve and Stasavage point to the large increases in taxes on the rich which accompanied the entrance of various countries into the two world wars of the twentieth century and conclude that high taxes on the rich have been sustained essentially only in times of mass mobilization for war, the prime examples of which being the two world wars. Although they are careful not to assert that it is the only setting in which significantly progressive taxes can be implemented and maintained, the authors argue that mass mobilization is the only factor which can be isolated as correlative with highly progressive taxation. Based on the Scheve and Stasavage data – including observations from the tax systems of twenty-one countries between 1800 to 2010 – and the Stata commands used in their analysis online, we conclude that not only are there other factors that have determined the dynamics of progressivity, but that these factors appear to be more important than military mobilization. Based on our analysis, for example, we strongly suspect that social cohesion and stability may be another, and arguably more important, factor.
Keywords: progressive taxation, optimal taxation, inequality, elasticity, public finance
JEL Classification: H20, H21, H24, K34, N00
Suggested Citation: Suggested Citation