A Theory of Top Income Taxation and Social Insurance

Francisco Gonzalez () and Jean-Francois Wen

No 1306, Working Papers from University of Waterloo, Department of Economics

Abstract: The development of the welfare state in the Western economies between 1930 and 1990 coincided with a puzzling pattern in the taxation of top incomes. Effective tax rates at the top increased sharply but then gradually decreased, even as social transfers continued rising. We propose a new theory of the development of the welfare state to explain these facts. Our main insight is that social insurance and top income taxation are substitutes for averting social confl?ict. We emphasize the role of the Great Depression as a source of aggregate risk, and argue that the rise of the welfare state can be understood as a process of exploiting efficiency gains in response to gradual technological improvements in the provision of social insurance. Our detailed arguments build on the policy histories of the United States, Great Britain, and Sweden.

JEL-codes: D30 H20 H50 P16 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2013-10, Revised 2013-10
New Economics Papers: this item is included in nep-ias, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: A Theory of Top Income Taxation and Social Insurance (2015)
Working Paper: A Theory of Top Income Taxation and Social Insurance (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:wat:wpaper:1306

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