Who will support the modern economy and for how much longer? While the demographic base of Western countries is shrinking, the fiscal demands on those who work, pay and stay are growing. The article traces how the relationship between citizens and the state has shifted in recent decades and why more and more people no longer feel like owners of their community, but rather like its permanently bound debtors.
The previous columns in this series examined the structures on which modern economies rest. Energy as the physical engine of production. Bonds as the circulation. Debt as the shadow the future casts on the present. Sovereign equity as the long ledger of stewardship. Taxation as the narrow pillar of revenue. Each column described a piece of the machinery.
This week, the focus shifts from the machinery to those who sustain it.
Modern economies do not run on capital alone. They run on people. People who work, save, consume, raise children, pay taxes and, in due course, hand on what remains. The system speaks of them in aggregates. Labour force participation. Dependency ratio. Median income. Taxpayer base. The language is functional, almost industrial, and the framing it implies is rarely made explicit.
It is worth making explicit. From the system’s point of view, a population is not a collection of individuals. It is a productive resource, distributed across age cohorts, with predictable patterns of contribution and consumption across a lifetime. This way of seeing has a long history, and the discomfort it produces is part of its accuracy. Aristotle, in the Politics, already treated the citizen first as a participant in the productive and military life of the polis, and only afterwards as a person. The modern fiscal state operates on a more sophisticated version of the same logic. The vocabulary has softened. The structure has not.
The question this column asks is what follows when the productive resource itself begins to shrink, and when the obligations running between citizen and state cease to be symmetrical.
The shrinking base
The demographic position of the developed world in 2026 is, by any historical standard, unusual.
The median age in Japan has reached fifty. In Italy, forty-eight. In Germany, forty-seven. The working-age population of the European Union peaked around 2010 and has been declining since. China’s working-age population peaked in 2014. South Korea’s fertility rate, at roughly 0.7 children per woman, is the lowest ever recorded in a peacetime developed economy. The United States, sustained largely by immigration, is the demographic outlier among major economies, but its fertility rate too has fallen below replacement.
The dependency ratio, the standard measure of the working-age population relative to those it must support, is rising across the developed world. The OECD projects that by 2050, most of its member states will have fewer than two working-age adults for every retiree, compared with roughly four in 1990. The fiscal architecture of the post-war settlement, pensions, healthcare, social insurance, was designed for the opposite ratio.
This matters because each of the structures described in earlier columns rests on the existence of a productive working population. Bonds are repaid from future income. Debt is serviced from future taxation. Sovereign equity is the residual claim of citizens on assets stewarded for future generations. Taxation falls on those who earn. Remove or shrink the productive base, and every other column in this series begins to operate under tighter constraints.
The pillar of revenue described last week is narrow. The pillar that produces the revenue is also, increasingly, narrow. And unlike the high earners examined in that column, this pillar is largely immobile.
Those who stay
The Taxation column closed on the observation that those who pay most of the income tax are those who, in many cases, also have the means to leave. The corollary deserves attention. The broader working population, those who form the labour force, raise the next generation and sustain the productive base, are almost entirely tied to where they live. By language, by family obligation, by professional networks anchored to a local economy, by the practical impossibility of moving a household across a border with any reasonable hope of equivalent employment. For most working people in most countries, mobility is not a meaningful option. The choice to remain is, in effect, not a choice.
This is the population on which every fiscal system ultimately rests. They are the producers, the consumers, the taxpayers, the contributors to the pension and healthcare systems that will, in due course, fund their own retirements. They cannot be repriced, hedged or relocated. From the perspective of the sovereign balance sheet, they are the most reliable asset on the ledger.
It is, in plain terms, the most durable participation available in any modern economy. It is also, in plain terms, the least negotiable.
How recent the modern fiscal claim actually is
The obligations carried by this immobile pillar are now considerable. They are also, by any historical measure, recent.
Britain introduced the first modern income tax in 1799, under William Pitt the Younger, as a temporary emergency measure to fund the Napoleonic Wars. It was repealed after Waterloo, reintroduced in 1842, again, in principle, as a temporary measure, and never abolished thereafter. The United States enacted its first federal income tax in 1861 to fund the Civil War, allowed it to lapse, and made it permanent only with the Sixteenth Amendment in 1913. France adopted its modern income tax in 1914, on the eve of the First World War. Germany followed in 1920. Switzerland’s federal direct tax has its origins in wartime emergency levies of 1916 and 1940. In nearly every case, the same pattern repeats. The tax was introduced as a wartime measure, justified as temporary, and quietly made permanent once the emergency had passed.
For most of recorded history, states funded themselves through tariffs, excise duties, land taxes, levies on specific transactions and the periodic debasement of the coinage. A recurring claim on individual income, collected annually, indexed to ability to pay, with substantial administrative machinery to enforce it, is essentially a twentieth-century phenomenon. It was made possible by the bureaucratic and accounting capacities developed during the two world wars, and normalised by the post-war expansion of the welfare state.
The value-added tax is more recent still. It was designed in 1954 by Maurice Lauré, a French inspector at the Direction générale des impôts, and adopted in France that year. From there it spread across the European Economic Community through the harmonisation directives of the 1960s and 1970s, and is now in force in roughly 170 countries. The United States remains the major holdout. Standard VAT rates across Europe today range from 17 percent in Luxembourg to 27 percent in Hungary, with France at 20 percent and most other major economies clustered in the 19 to 25 percent band.
The philosophical content of this is worth pausing on. A consumption tax of this magnitude is, in plain terms, a charge for the act of buying what one needs to live. Most jurisdictions reduce or zero-rate the most basic foodstuffs, but a substantial portion of household consumption, energy, clothing, transport, most prepared food, almost all services, carries the full rate. The citizen pays income tax on what they earn, social contributions on the same income, capital-gains tax on what they save, and consumption tax on what they spend. The architecture is comprehensive in a way that would have been administratively unthinkable to any state before the twentieth century, and is now treated as so ordinary that its historical novelty is rarely remarked upon.
And the architecture is not static. It continues to be adjusted, in both directions, year after year. New levies are introduced and existing ones are extended. France reinforced its exit tax in late 2025. Several European jurisdictions are debating wealth taxes again. Inheritance thresholds are being reviewed, almost always downward in real terms once inflation is accounted for. At the same time, the obligations running the other way, from state to citizen, are being adjusted too. Pension ages are rising. Healthcare entitlements are being narrowed by waiting lists and access criteria. Public services in much of Western Europe are visibly under strain. The construction is not finished. It is being adjusted in real time, mostly in one direction on one side of the ledger and in the other direction on the other.
The current fiscal claim is therefore not the unchanging baseline against which any future change must be measured. It is itself a recent construction, built quickly, in stages, mostly during wartime, rarely subjected to the foundational debate its scale would seem to warrant, and still being revised at the margins today.
A historical comparison sometimes intrudes here, and is worth confronting rather than avoiding.
The schoolbooks of every Western country teach the medieval tax burden as an example of how badly the common people were treated before the modern era arrived. The French case is the standard illustration. The taille was the royal direct tax, levied on commoners while the nobility and clergy were largely exempt. The gabelle was the salt tax: peasants were obliged to buy a fixed minimum quantity of salt from the royal monopoly, at prices set well above market, in order to preserve the food they would otherwise be unable to keep. The dîme was the ecclesiastical tithe, a tenth of agricultural output paid to the Church. The arrangement is presented to students as evidence of the unfairness from which the modern state delivered them.
The comparison rewards careful examination. A modern worker in a high-tax European jurisdiction pays roughly 40 to 50 percent of gross labour cost in income tax and social contributions, a further 20 percent of net consumption in VAT, varying amounts on energy, transport, alcohol, tobacco and motor fuel, property and local taxes on the home they live in, capital-gains tax on what they save, and inheritance tax on what they pass on. The combined effective claim on a productive lifetime, properly calculated, is not obviously lower than the combined burden of taille, gabelle and dîme on a medieval commoner. In some configurations it is higher.
The standard reply is that the modern claim funds services the medieval commoner could not have imagined. That reply is partially correct and worth taking seriously. The modern state funds infrastructure, education, healthcare, pensions and social insurance at a level no pre-modern state could have approached. These are real and material benefits, and the column does not minimise them.
The reply becomes less convincing, however, when one asks what actually produced the material progress of the past two centuries. The dominant drivers were technological, industrial and scientific: the steam engine, electrification, antibiotics, mechanised agriculture, the green revolution, the digital transition. The role of the state in each of these varied widely across countries and periods, from significant to negligible. What is undeniable is that the fiscal claim grew alongside this progress. Whether it caused the progress, accompanied it, or in some cases retarded it, is a question on which serious economic historians, from Joel Mokyr to Deirdre McCloskey, have reached different conclusions. The assumption that the modern fiscal claim is the price one pays for modern living standards is, at best, an empirical question rather than a settled one.
There is a French expression for the experience of confronting a present-day reality that resembles too closely the past one was taught to consider safely behind: on doit se pincer pour ne pas rêver. One has to pinch oneself to make sure one is not dreaming. The expression captures something the column is not in a position to settle, but is also not in a position to ignore.
The two-way ledger
The earlier columns described citizens as the residual claimants of the national balance sheet. The ultimate shareholders. Those who inherit the consequences when stewardship succeeds, and who absorb them when it fails. That framing was accurate as far as it went. It is also, on examination, only one direction of a relationship that runs both ways.
Shareholders in a company are not taxed for selling their shares. They are not required to disclose foreign accounts to the company’s auditors. They are not pursued for unpaid dividends across borders for the rest of their lives. The relationship between a shareholder and a corporation is bounded, terminable and indifferent to the person of the owner.
The relationship between a citizen and a state is none of these things, and has not been for some time.
A French resident with substantial holdings who wishes to leave faces a 31.4 percent levy on unrealised capital gains, with a monitoring period the National Assembly voted in November 2025 to lengthen back toward fifteen years. An American citizen owes US tax on worldwide income for life, regardless of where they live, and pays again on departure if they renounce. The United States is one of only two countries in the world that taxes by citizenship rather than residence; the other is Eritrea. Most European states have introduced or expanded exit-tax regimes since 2010. The French Minister of Public Accounts, Amélie de Montchalin, stated openly in defending the recent reinforcement of the French exit tax that the projected revenue, roughly seventy million euros, would be modest. Its purpose, in her own words, was deterrence.
This is the language of an entity that considers its high-value participants something other than free shareholders. It is closer to the language of retention.
The claim that extends beyond death
The fiscal claim has also extended in time. In most developed economies, the state now reaches forward through the moment of death itself. Inheritance and estate taxes apply a further levy on assets accumulated from income that was already taxed, transferred at the moment a family is least able to plan or negotiate.
The standard economist’s defence of this is that the heir is receiving income for the first time, and that taxing unearned transfers is consistent with taxing other unearned receipts. The defence is coherent, but it rests on a particular view of what an inheritance actually is.
Inside an ordinary family, an inheritance is rarely a windfall. It is the visible accounting entry for a transfer that has already happened, often over decades, through the foregone consumption, foregone leisure and foregone presence of a parent who worked and saved with a specific recipient in mind. The hours not spent at home, the holidays not taken, the early mornings and the late evenings, are the actual mechanism of transfer. The asset that appears on the death certificate is what those hours bought. Gary Becker, awarded the Sveriges Riksbank Prize in Economic Sciences in 1992, the prize Alfred Nobel did not establish, added by the Swedish central bank in 1968 and grouped with the originals by convention rather than by Nobel’s will, built much of his work on the family on exactly this premise. Transfers within a family are the visible output of long-running implicit contracts. Treating them as discrete arm’s-length transactions misunderstands what families are doing.
A further observation, rarely made explicit, sharpens the point. Inheritance tax is one of the few major taxes whose practical incidence depends almost entirely on whether the family had the means to plan. Substantial estates structured through trusts, foundations, insurance wrappers, holding companies and cross-border vehicles largely escape it. Middle-class families whose savings represent a single home and a modest portfolio cannot. The tax rhetorically defended as falling on dynastic capital falls most heavily on those whose accumulation reflects genuine foregone consumption. The dynasty is gone before the tax authority arrives. The diligent saver is not.
This is not, as some critics suggest, a moral observation. It is a structural one. Whether the result is intended or merely tolerated is a question on which reasonable people disagree. The pattern, however, is consistent across most jurisdictions where the tax remains in force.
The asymmetry, in one direction
A pattern emerges from all this, visible once one looks at the relationship between citizen and state across both directions of the ledger.
The state’s claims on its residents have grown more durable, more international and more temporally extended over the past forty years. Citizenship-based taxation in the American case. Exit taxes across most of Europe. Automatic exchange of financial information under FATCA and the OECD Common Reporting Standard. Inheritance taxation that reaches across the moment of death. Consumption taxes that now claim a fifth of every household purchase across much of the continent. A fiscal jurisdiction that no longer ends at a border, or at a lifetime, or at the till.
The citizen’s claims on the state, over the same period, have moved in the opposite direction. Pension ages are rising. Healthcare entitlements are being rationed. Public infrastructure is ageing visibly. Education systems are under strain. The implicit promises embedded in the post-war social contract, as the column on debt observed, depend on a future that may not arrive. What the citizen is owed has become more contingent. What the citizen owes has become more enforceable.
This is the analytical observation on which the column rests. It is not a complaint. It is not a forecast of rupture. It is a description of where the two columns of the ledger have moved over the past four decades, in opposite directions.
Owner, or owed to?
In theory, citizens are the shareholders of the nation. Sovereignty resides in them. They are the residual claimants of the national balance sheet, the inheritors of national equity, the ultimate beneficiaries of stewardship done well. This is settled doctrine in every modern democracy and the analytical framing the Equity column adopted without qualification.
In practice, the mechanics of fiscal and legal obligation running across modern citizenship suggest a description that is harder to reconcile with shareholder language. The shareholder is not pursued across borders for life. The shareholder does not pay an exit fee. The shareholder does not have a portion of the estate claimed before it reaches the next generation. The shareholder may walk away.
Both descriptions are formally true. They are not, however, equally well-defended.
The thinkers who have wrestled with the relationship between citizen and state across two thousand years of political thought reached no consensus. Aristotle held that the citizen exists for the polis and finds full expression only within it. Rousseau, more uncomfortably, held that the citizen owes their life to the general will because without it the individual is nothing. Hobbes built the modern theory of obligation on consent that no one, in fact, signed. Locke argued for tacit consent through residence, a doctrine that has aged less well as residence has become harder to leave. Hayek and Friedman, in the twentieth century, rejected the entire framing and argued that the citizen owes the state only what they would owe a service provider, no more and no less.
What unites these positions is that they were all developed in a world where the state’s claims on the citizen were narrower than they are now. None of them anticipated FATCA. None of them anticipated citizenship-based taxation reaching across continents. None of them anticipated inheritance regimes that extend the claim across the moment of death, or consumption taxes that claim a fifth of every transaction. The theoretical vocabulary the modern reader inherits to describe the citizen-state relationship was developed for a fiscal architecture that no longer exists.
This is the question the column leaves open. If the obligations running in one direction are being made heavier and more enforceable, while the obligations running in the other are being quietly rewritten, what is the right word for the relationship that results? Shareholder is the comfortable word, and the one the official vocabulary uses. Whether it is still the accurate one is a question worth asking, even, perhaps especially, by those who would prefer the answer to be yes.
Shareholders who notice
Whatever the right word for the relationship turns out to be, the people inside it have begun to act. The accumulated weight of everything described so far, the rising contributions, the eroding services, the claim that extends across borders and across death, the architecture being adjusted in opposite directions on the two sides of the ledger, does not remain abstract for those who carry it. It produces a response. Across the developed world, the response has become visible.
France saw the gilets jaunes movement erupt in 2018 over a fuel-tax increase that, in nominal terms, was modest. The scale of the response surprised the government precisely because the tax itself was small. The Dutch farmers’ protests of 2022, the German farmers’ blockades of early 2024, the rolling industrial actions across Belgium, the protests in Spain over housing and energy costs, the British public-sector strikes of 2023 and 2024, all describe a pattern that fits awkwardly into the conventional language of left and right. The grievance in each case is harder to categorise politically than it is to describe structurally. The citizens are paying more, in real terms, for services they perceive as deteriorating, and they are responding.
The electoral pattern reads the same way. The rise of Rassemblement National in France, AfD in Germany, Fratelli d’Italia in Italy, PVV in the Netherlands, the Sweden Democrats, Vox in Spain, the second Trump presidency in the United States, the persistent Brexit settlement in Britain, are most often analysed through the lens of culture, identity, immigration or media polarisation. Each of these analyses captures part of the picture. None of them captures all of it.
A simpler reading, in the analytical register this series has used throughout, is available. The traditional centre-left and centre-right coalitions across the developed world managed the post-war settlement on terms that worked when the productive base was expanding, taxes were rising from a low base and services were improving in real terms. Those conditions no longer hold. The shareholders, in the strict sense of the term the Equity column adopted, observe that contributions are rising and dividends are falling. They are doing what shareholders dissatisfied with management have always done. They are changing the management.
Whether the replacements deliver better stewardship is a separate question, and not one this column is in a position to answer. The point, for analytical purposes, is narrower. The pattern is consistent with the framing the series has been developing. It is what shareholder dissatisfaction looks like when the shareholders happen to be voters.
A simple conclusion
Demographics will not resolve this question. They will sharpen it. As the productive base narrows, the obligations running from citizen to state will be defended more vigorously, because the system depends on them. The obligations running from state to citizen will be renegotiated more aggressively, because the system can no longer afford them on the original terms. The shareholders will notice. They are already noticing.
The pillar that cannot move is also the pillar that pays, and stays, and sustains. Whether it owns what it sustains, or is owned by what it sustains, is a question modern political vocabulary handles poorly, and the data does not, on its own, settle.
Citizens may be the ultimate owners of the national equity. They may also be the most durably obligated participants in a contract they did not negotiate and cannot easily exit. Both descriptions can be true. Which one becomes more visible when the system comes under stress is the question the next decade may answer more clearly than the last one did. The early signals are visible in the streets, and at the ballot box, in country after country. The shareholders, it seems, have begun to read the annual report.
Eric Lefebvre
Read also: The narrow pillar
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