The Political Origins and Economic Consequences of Taxing Low Wages
Chapter 6: Conclusion: Employment and Redistribution are Not Incompatible
In a nutshell, the basic message of this book is that employment and taxbased redistribution are not incompatible, even in a globalized economy. If there is conflict, it is of political rather than economic nature. I will briefly summarize the main findings before I proceed to policy proposals that aim at re-balancing employment with tax incentives. ANALYTIC AND EMPIRICAL CONCLUSIONS The choice of the tax mix is both politically and economically a highly relevant question. Chapter 2 has shown that the tax mix reveals underlying differences in the tax structure about redistribution, insurance and inclusion. For long these structural features have determined the political mobilization in welfare states. After the Second World War the tax mix of income, payroll and indirect taxation has gained political importance since ever-increasing non-wage labour costs put labour markets under serious pressure. Given the strong demand for public welfare, the discussion has shifted from whether to how to tax labour. The aim is then to combine goals of public policy such as redistribution and a good performance of labour markets. In that respect we have seen that countries differ in how far they use income taxes as a source of financing the welfare state. We also have seen a shift away from income taxes in most OECD countries. As explained in Chapter 2 this arguably has led to an overall tax structure with lower degrees of tax progressivity and, at least for poorer workers, less insurance. Tax-based redistribution and high employment are not incompatible as...
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