Taxation and inequality

This chapter provides an introduction to the study of taxation and inequality. In particular, its aim is to disentangle the complex relation between tax policy making and socio-economic inequality by proceeding in three steps. First, the chapter gives a systematic overview of how tax policies can affect inequality. It differentiates between three ways in which taxation may influence inequality: by providing the funding basis for social security programmes, by adjusting the tax burden for different socio-economic groups, and by increasing global market integration. Second, the chapter investigates whether inequality itself affects tax policy making. In line with recent research, it does find that rising inequality neither leads to more progressive taxation nor to a higher tax take. Finally, it discusses several factors that might account for the lack of tax policy responsiveness to inequality and indicates potential avenues for future research.