Taxation in Law and Economics: A Brief Review for Public Policy Decisions

Abstract

The purpose of this research paper is twofold. The first chapter gives a survey of the experimental literature on the perception of individuals concerning their tax burden and its effect on economic decisions. Within this chapter, several strands of literature are discussed, namely: perception of marginal tax rates, influence of tax complexity on tax perception, taxation and incentives to work, tax salience, and tax morale and fairness. The second chapter considers whether knowledge of the tax law is socially desirable. Here, whether knowledge of the tax law is desirable depends on three factors: expectations about the tax in the absence of knowledge, the type of tax, and the quality of the tax. Then, apply this to various policy decisions where knowledge of the tax law is a key variable, including the regulation of tax advisors, hidden taxes, and whether individuals have the socially optimal incentive to seek knowledge of the tax law.