The Social Norm of Tipping, Its Correlation with Inequality, and Differences in Tax Treatment Across Countries

Abstract

In a previous article I argued that tipping facilitates tax evasion, hurts employees’ financial security in the long run, and is a form of negative externality imposed by wealthy people on the rest of society. In this Article I try to understand the reasons for the greater popularity of the norm in the U.S. compared to other countries, suggesting it may be related to the U.S. cultural preference for linking redistribution with work requirements, relatively high income inequality and consumerism. To that end, I further develop the negative externality argument suggested in the previous article by looking at trends in income inequality in the U.S. and by interpreting the global distribution of the norm through the prism of my inequality/negative externality argument. I then look at the tax treatment of tips in various countries in search of a pattern that supports the differences in social norms.