Discussion papers // School of Economics and Management of the Hanover Leibniz University 404
Social values shape policy outcomes. We examine the role of postmaterialism, a widely used concept in the social sciences, for the mix of capital and labour taxation chosen by a society. Following political scientist Inglehart, we define the degree of postmaterialism as the relative importance which individuals or a society as a whole ascribe to non-material values over material things. We incorporate this notion into a simple tax model for a small open economy. We show that a greater emphasis on immaterial values will lower the ratio of capital to labour taxes. Subsequently, we test our theoretical results empirically, using a panel data set comprising 17 OECD countries over the period 1981-2000. Proxies for the degree of postmaterialism are developed from the World Values Surveys. Their impact on the tax mix is highly significant and goes into the theoretically predicted direction.
Culture economics social values postmaterialism taxation