The decline in top income tax rates

Questions of taxation, from the structure and progressiveness of the tax system to the rules determining the tax base, have taken centre stage in the policy (and academic) debate in Europe and elsewhere. Pressures on public spending have been mounting for decades due to such developments as the maturing of welfare states and ageing populations. They further intensified during the crisis, especially in Europe, leading to more restrictive social policies and leaner public services that do not meet demand (Theodoropoulou 2018).  At the same time, big challenges, such as the transition to a more environmentally sustainable model of growth but also technological advances, will require massive efforts and public resources in order to facilitate a ‘just transition’ to the new realities. High capital mobility has, over the years, put constraints on the taxation of capital by national governments, although these constraints have varied. It is difficult to explain increases in income inequality (mostly driven by developments in the top 1% of incomes) as simply the result of the disparity in educational attainment; the lowering of the top income tax rates arguably also plays an important role (Atkinson 2015). Last but not least, recent high-profile revelations about worldwide tax avoidance mechanisms used by wealthy individuals and corporations have been fuelling a sense of social injustice about sharing the burden of adjusting to current and recent challenges and crises.

more information in Benchmarking Working Europe 2019 chapter 1 'Macroeconomic developments in Europe: tackling the growth, inequality and climate change challenges'