Tax mixes and the size of the welfare state: causal mechanisms and policy implications

This paper questions the argument that strong and early reliance on ‘regressive’ taxes (consumption and payroll taxes) made it politically easier to build and maintain a large welfare state. It develops an alternative perspective which differs in two respects. First, a crucial ‘advantage’ of regressive taxes is that they imply moderate capital taxation, but this can also be achieved within income tax. Second, the direction of causality moves...