Tax systems and tax reforms in Europe: Rationale and open issue for more radical reforms

(1999) report Gini coefficients on ex ante incomes ranging from 0.25 (Germany) to 0.41 (The
United Kingdom). Also, an even level of capital income tax rate is required and this the case
in many European Countries (see back, par. 2.3.2). Just as one example, for the middle 1990s
Joumard (2001) reports rates on interests ranging from 12.5 per cent (Italy) to 30 per cent
(Sweden, not surprisingly).

Horizontal equity seems not much to be at the center of political action. We have already
discussed a widespread lack of equity in the fiscal treatment of households, with reference to
the number of both earners and dependents. As to the latter, the modern “welfare view,” re-
stricting the need of allowances only to low-income families, is now contrasted by a renewal
of the old “optimum size view,” induced by the worries of a European declining population.
According to this view, allowances should be extended also to the middle-to-high incomes
and should reach a huge amount in order to work effectively.

A true fairness further should extend the concept of horizontal equity at least in two direc-
tions. Firstly, the tax system should contribute to make the social justice principle of equal
opportunities effective. For instance, taxing human capital formation is not only inefficient,
but it is also unfair. Similarly, inheritance taxes should be empowered and not written off, as
it is largely occurring.

Second, the old fashioned qualitative discrimination among incomes (traditionally in fa-
vor of dependent work) should be enlarged and extended to encompass more features, for in-
stance those that can differentiate the social merit of some income and wealth levels.²⁶ Thus
the market distortions at the individual income levels (due to rents, information failures and
under evaluation of social value of some activities) should be compensated by the fiscal sys-
tem. For instance, (just Italian?) lawyers and football players should be more taxed, whereas
less taxes should be charged on teachers and long term care nurses. The same could be said,
looking also at efficiency targets, by considering the high difference which generally exists
between labor supply elasticity of men and married women (e.g. Blundell 1992).

4. Tax Reforms and the incoming changes within the European institutional
and policy setting

²⁶ Notice some likeness with Atkinson’s (1996, cap. 15) “Participation Income Scheme,” which was well re-
ceived by 3^rd edition (p. 270) of Muller’s “Economics of Welfare”.

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