Reassessing Tax Fairness Through the Lens of Fiscal Fairness

Abstract

Policy debates on European welfare states often rely on an incomplete notion of tax fairness that overlooks indirect taxes and in-kind public services. Using a comprehensive fiscal incidence framework, we show that once direct and indirect taxes, cash transfers, and in-kind benefits are jointly considered, the number of net contributor households in the EU declines substantially. While high-income households remain the primary net contributors, many low- and middle-income households are net beneficiaries due to the redistributive role of public services. I conclude that fiscal fairness, rather than tax fairness alone, provides a more appropriate basis for evaluating redistribution, sustainability, and welfare state reform.