Abstract
The structure of a tax system is relevant to public health. Wage taxes are the predominant form of taxation in both Europe and the United States. Yet, high rates of wage taxation harm worker health particularly when wage taxes are part of an overall regressive tax system. The causal mechanisms for the negative effect of wage taxes on public health occur by (i) pushing marginal workers into absolute poverty by payment of wage taxes; (ii) increasing working hours for low-wage workers; (iii) increasing levels of economic inequality by relatively higher tax and audit rates of persons with labor income; and (iv) reducing financial (and time) investment in children by overburdened workers. Optimal tax policy accordingly requires an evaluation of the cost of wage taxes levied on “health capital” of workers as well as financial capital.