Equal Treatment and the Inelasticity of Tax Policy to Rising Inequality

• Author: Kenneth Scheve,David Stasavage
• DOI: http://doi.org/10.1177/00104140221108415
• Published date: 01 March 2023
• Date: 01 March 2023
• Subject Matter: Articles

Article

Comparative Political Studies

2023, Vol. 56(4) 435–464

© The Author(s) 2022

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DOI: 10.1177/00104140221108415

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Equal Treatment and the

Inelasticity of Tax Policy

to Rising Inequality

Kenneth Scheve

1

and David Stasavage

2



Abstract

We argue that tax policy typically does not respond to inequality because

many voters hold equal treatment fairness beliefs for which the expectation is

that, just as all have one vote, the state should treat citizens equally on other

dimensions of policy. In the tax domain, this means all should pay the same

rate. We propose a new survey instrument to measure equal treatment

beliefs and implement it in surveys in Germany, the United Kingdom, and the

United States. We document in all three countries a robust negative partial

correlation between the strength of individual equal treatment beliefs and

preferences for higher taxes on the rich. We also present results from a

survey experiment in the United States that exposes respondents to a vio-

lation of equal treatment beliefs—voting weighted by educational attainment.

Exposure to this treatment both increases the strength of equal treatment

beliefs and decreases support for progressive taxation.

Keywords

political economy, economic policy

Introduction

The capacity of democratic governance to manage market capitalism has been

a fundamental concern of political economists from the beginning of the

1

Yale University, New Haven, CT, USA

2

New York University, New York, NY, USA

Corresponding Author:

David Stasavage, New York University, NYU, New York, NY 10012, USA.

Email: david.stasavage@nyu.edu

industrial revolution. Could democracies regulate market competition in

product, labor, and capital markets to produce good economic outcomes for

society as a whole? Would democratic policymaking be able to develop policy

answers to the inevitable problems that capitalism would create?

Increasing economic inequality across people and communities within

countries is thought by many to be responsible for increasing support for

political candidates and parties of the left and the right that question the

foundations of liberal democratic capitalist societies. The consequences of

increasing economic inequality are not limited to its effects on the political and

social life of individual countries but also are argued to have weakened the

liberal international order that has provided a framework for promoting

cooperation and resolving conf‌lict among countries since the end of World

War II.

If economic inequality poses a problem for domestic and international

political stability, it is of paramount importance to understand when and why

democratic societies do and do not respond to it. We investigate this question

by considering one of the most powerful policy tools that states have to

inf‌luence inequality: progressive taxation of income and wealth. Taxes on the

rich and the redistribution that they fund can equalize post tax-and-transfer

incomes and, through their effect on economic incentives, may also have a

direct equalizing effect on market incomes and wealth.

It is well known that inequality has increased in the United States over the

last four decades while tax rates on the wealthy have fallen. So democratic

policymaking has not been “self-equilibrating.”In this article, we take a broad

look at the history of progressive taxation in seventeen countries to ask

whether increasing income and wealth inequality predicts future taxation on

the rich. In the context of the well-known US result, we investigate whether

the failure of US tax policy to respond to rising inequality is somehow ab-

normal or atypical. We f‌ind no evidence that on average, changes in inequality

predict future changes in tax policy. One can, of course, point to specif‌ic

countries and historical episodes when rising inequality drove increases in

taxes on the rich but it is typically not what happens.

This f‌inding raises the question of why democracies don’t tax the rich in the

face of increasing inequality. Answers to this question can be divided into two,

possibly complementary, sets of explanations. One possibility is that citizens

want a more progressive tax system to respond to economic inequality, but

democratic political systems fail to deliver policies consistent with these

preferences because they are captured by the rich. The alternative view is that

the public, or at least not enough of the public to overcome whatever ad-

vantages the rich have in the political process, does not prefer higher tax rates

on higher incomes and wealth despite rising inequality.

We develop a new explanation for why the public does not have more

progressive tax preferences and why democracies often do not respond to

436 Comparative Political Studies 56(4)