Raising capital taxes and investing in social protection and education may reduce income polarisation in Europe.

Rising income polarisation and inequality in Europe has been of concern to governments and policymakers since before the beginning of the financial crisis in 2008. Using survey data from over 300,000 EU households, Mario Holzner examines how government policies can affect levels of income polarisation for the rich and poor. He finds that higher progressive labour and capital taxes are correlated with lower levels of income polarisation. Higher levels of public expenditure on social protection, education and economic subsidies are also related to a lower degree of polarisation.