The effect of policy objectives, complexity, and self-interest on individuals' comparative fairness judgments of a flat tax

Abstract

The purpose of this study was to identify how individuals form fairness judgments about a tax system and what factors they attend to when comparing the fairness of a flat tax system with the current tax system. Based on equity theory and prior tax research the complexity of the tax system, the policy objectives achieved by the tax system and the financial effect of the tax system were hypothesized to influence individuals' fairness judgments. Further, the function served by an individual's attitude toward the tax system was expected to further explain when, self-interest would be particularly salient.The study's hypotheses were tested using the responses to a questionnaire sent to a cross-section of U.S. citizens. The study participants compared the current federal tax system with a flat tax system that differed from the current system on three dimensions. The alternative system was less complex than the current tax system, it achieved different policy objectives than the current system and the personal tax liability of the participants differed between the two systems. Regression analysis was used to assess the relative influences on the respondents' fairness judgments. Respondents' comparative fairness judgments were influenced by their judgments regarding economic goals achieved by each tax system, unjustified complexity, and, especially, self-interest.