Income inequality and happiness in 119 nations

1.1 The question how much income inequality is acceptable All modern nations engage in active income redistribution and have a system that taxes the wealthy to a greater extent than the poor. Redistributive policies are accompanied by a continuous discussion on the question of how much income inequality is justified (e.g. Pen and Tinbergen, 1977; Sen, 1997). This discussion has an important ideological component: egalitarians claim that all people are equal and that wealth is generated by society as a whole. They conclude that the benefits of our wealth should therefore be equally shared. Libertarians stress the fundamental right to property and claim that wealth is the result of free enterprise. Their ideal is a form of ‘limited government’ that does not interfere with the spontaneous evolution of income differences. As these principles are incompatible, egalitarians and libertarians can at best compromise.