Fairness, self-interest, and the politics of the progressive income tax

Abstract

Virtually all advanced democracies have adopted income taxes with considerable progression in marginal tax rates. To explain this we examine the nature of individual and collective preferences over alternative tax schedules, in the context of a simple two-sector model. Our results suggest that marginal-rate progression is not the result of a society's desire to achieve a more ‘fair’ distribution of income, but rather, it is due to the desire of middle-income citizens to reduce their own tax burden.