This paper establishes a causal link from fairness beliefs to perceived economic inequality. I conduct an experiment where participants are asked to estimate various income inequality measures of hypothetical societies. While the true income distributions of the societies remain identical and simple, the description of the societies varies to indicate ``fair” and ``unfair” inequality across respondents. Describing the society as unfair increases the incentivized estimated top 10% income share as much as the actual difference between Denmark and the United States. Other inequality metrics are similarly affected. The findings imply that ideological beliefs fundamentally alter how people perceive economic inequality.

Many economic systems aim to combine economic efficiency, equity, and ecological sustainability. A fundamental question is how important the different dimensions are for the success of a country and to what extent there are trade-offs between them. We survey economists around the world and a representative sample of German citizens regarding their perceptions on the importance of the dimensions and trade-offs. We find that while economists rank efficiency as most important, sustainability and equity are deemed almost as important for the success of a country. In contrast, laypeople most often assign equal weight to all three dimensions. While we find substantial disagreement among economists regarding trade-offs, among the population we find a central tendency bias. This bias seems to be partially driven by educational differences. The differences we find between economists and laypeople may be responsible for the populations’ skepticism towards many solutions proposed by economists.

We bring together the inverse optimal taxation and the fairness literature. We invert a fair tax formula and apply it to tax-benefit schemes in Europe to estimate the implicit degree of compensation for each factor that determines individual well-being. We provide a new way to formalize the intuition that, in a fair society, people should be allowed to benefit more from their efforts than from exogenous characteristics. Our empirical results confirm this intuition. We provide the first estimates of implicit tax rates for different characteristics in 31 European countries using EU-SILC data for the years 2007 - 2018. We find a robust tendency in all countries to compensate more for uncontrollable characteristics compared to the partially controllable ones. We then attempt to calculate which countries currently have fair tax systems. Only the Continental countries France and Luxembourg pass the fairness test, whereas the Baltic and Anglo-Saxon countries perform worst.