Progressive tax system benefits society by accounting for labor interdependence.
The paper explores how income taxes can be designed to benefit society by considering how people's work choices affect each other. It finds that when people's happiness from work depends on how much others work, a progressive tax system can be best. This means that as people earn more, they should pay a higher percentage in taxes. The study also shows that in countries with more unequal wages, like the UK, taxes should be even more progressive to help balance things out.