Does the perception of benefit fraud shape tax attitudes in Europe?

Abstract

After the negative effect of the recent financial crisis on public finances in many countries, it is of a great interest to study attitudes towards taxation to identify effective policies to enhance public support for taxation and welfare programs. In this paper, we analyze empirically people’s attitudes towards taxation in European countries. In particular, we test whether the perception about benefit fraud may produce different effects on preferences over the size of the welfare state along the income distribution. Moreover, we test if contextual variables are relatively more relevant than individual characteristics in determining attitudes towards taxation. Using different data sources for many EU countries in 2008, we contrast those hypotheses taking advantage of multilevel techniques. Our results suggest that policies targeting the deterrence of benefit fraud such as higher penalties and more frequent benefit investigations, increase the high earners’ willingness to pay taxes and then the size of the welfare state. We also find that contextual characteristics explain a larger variance of attitudes toward taxation than individual characteristics, suggesting that the same policy for all UE countries might be not a good strategy.