Tax Aversion Research Articles

Can policy packaging help overcome Pigouvian tax aversion? A lab experiment on combining taxes and subsidies

Tax aversion makes it politically challenging to introduce Pigouvian taxes. One proposed solution to overcome this resistance is to package policies. Using an online lab experiment, we investigate whether combining a tax and a subsidy is perceived as more acceptable than the tax or the subsidy alone. The purpose of the policies is to reduce demand for a good with a negative externality to the socially optimal level. We find that support for a combination of a tax and a subsidy equals the simple average of support for the two instruments alone. Combining a tax and a subsidy therefore does not reduce tax aversion. We examine potential mechanisms behind the tax aversion. Participants believe they will receive a lower share of the tax revenue when the tax is implemented alone than when it is combined with a subsidy, i.e. the participants in the tax alone group hold more pessimistic beliefs about the tax revenue. We also find that the participants expect the tax to be more effective in reducing demand for the good with a negative externality than both the subsidy alone and the combinations of tax and subsidy. This belief does not, however, translate into support for the tax.

Tax Aversion and the Social Contract in Africa

AbstractDespite the low levels of taxation and public good provision in Africa, I provide evidence that a large proportion of Africans prefer lower taxation and fewer public goods. This cannot be explained by standard arguments about problems of accountability, governance or state capacity. Instead, I argue that it reflects deeply seated ideas about the nature of the state and its potential threats to the autonomy of society. I show the historic social contracts in Africa rarely featured taxation and kept the state to limited jurisdictions. These social contracts have in many ways reproduced themselves and influence the way Africa is governed today.

Carbon Tax Aversion and Macroeconomic Effects

Carbon Tax Aversion and Macroeconomic Effects

Can Policy Packaging Help Overcome Pigouvian Tax Aversion? A Lab Experiment on Combining Taxes and Subsidies

Can Policy Packaging Help Overcome Pigouvian Tax Aversion? A Lab Experiment on Combining Taxes and Subsidies

Yellow Vests, Pessimistic Beliefs, and Carbon Tax Aversion

Using a representative survey, we find that after the Yellow Vests movement, French people would largely reject a tax and dividend policy, i.e., a carbon tax whose revenues are redistributed uniformly to each adult. They overestimate their net monetary losses, wrongly think that the policy is regressive, and do not perceive it as environmentally effective. We show that changing people’s beliefs can substantially increase support. Although significant, the effects of our informational treatments on beliefs are small. Indeed, the respondents that oppose the tax tend to discard positive information about it, which is consistent with distrust, uncertainty, or motivated reasoning. (JEL D83, H23, H31, Q54, Q58)

Tax-Induced Inequalities in the Sharing Economy

The growth of sharing economy marketplaces like Airbnb has generated discussions on their socioeconomic impact and lack of regulation. As a result, most major cities in the United States have started to collect an “occupancy tax” for Airbnb bookings. In this study, we investigate the heterogeneous treatment effects of the occupancy tax policy on Airbnb listings, using a combination of a generalized causal forest methodology and a difference-in-differences framework. While we find that the introduction of the tax significantly reduces both listing revenues and sales, more importantly, these effects are disproportionately more pronounced for residential hosts with single shared-space (nontarget) listings versus commercial hosts with multiple properties or entire-space (target) listings. We further show that this unintended consequence is caused by customers’ discriminatory tax aversion against nontarget listings. We then leverage these empirical results by prescribing how hosts should optimally set prices in response to the occupancy tax and identify the discriminatory tax rates that would equalize the tax’s effect across nontarget and target listings. This paper was accepted by Victor Martínez-de-Albéniz, operations management.

Tax Aversion and the Social Contract in Africa

Tax Aversion and the Social Contract in Africa

Labor Supply Reaction to Wage Cuts and Tax Increases: A Real-Effort Experiment

We investigate the labor supply reaction to wage cuts and tax increases using a real-effort experiment. First, subjects perform a task and receive a reward with taxes deducted. Second, the wage cut treatment reduces the wage rate and the tax increase treatment increases the tax; wage and tax remain unchanged for the control group. The real wage is equal for both treatments, and both treatments had significantly smaller increases in effort levels than the control group. The effort level change did not differ between the treatments. Therefore, the net wage illusion and tax aversion identified in previous studies are absent.

Labor Supply Reaction to Wage Cuts and Tax Increases: A Real-Effort Experiment

We investigate the labor supply reaction to wage cuts and tax increases using a real-effort experiment. First, subjects perform a task and receive a reward with taxes deducted. Second, the wage cut treatment reduces the wage rate and the tax increase treatment increases the tax; wage and tax remain unchanged for the control group. The real wage is equal for both treatments, and both treatments had significantly smaller increases in effort levels than the control group. The effort level change did not differ between the treatments. Therefore, the net wage illusion and tax aversion identified in previous studies are absent.

Tax-Induced Inequalities in the Sharing Economy

The growth of sharing economy marketplaces like Airbnb has generated discussions on their socioeconomic impact and lack of regulation. As a result, most major cities in the United States have started to collect an “occupancy tax” for Airbnb bookings. In this study, we investigate the heterogeneous treatment effects of the occupancy tax policy on Airbnb listings, using a combination of a generalized causal forest methodology and a difference-in-differences framework. While we find that the introduction of the tax significantly reduces both listing revenues and sales, more importantly, these effects are disproportionately more pronounced for residential hosts with single shared-space (“non-target”) listings, versus commercial hosts with multiple properties or entire-space (“target”) listings. We further show that this unintended consequence is caused by customers’ discriminatory tax aversion against non-target listings. We then leverage these empirical results by prescribing how hosts should optimally set prices in response to the occupancy tax and also identify the discriminatory tax rates that would equalize the tax’s effect across non-target and target listings.

Are consumption taxes really disliked more than equivalent costs? Inconclusive results in the USA and no effect in the UK

In two experiments on hypothetical purchase decisions, Sussman and Olivola (2011) found that US citizens prefer avoiding tax-related costs over avoiding tax-unrelated monetary costs of the same size. The original Experiment 1 and 2 tests of this Tax Aversion indicated that people are willing to wait longer to receive a discount when it refers to taxes (e.g., “axe-the-tax discount”) than when it is just a regular discount (e.g., “customer rewards”). We conducted high-powered close replications of both original studies, Experiment 1 (N = 590) and Experiment 2 (N = 650), which reveal either no effect (Experiment 1: r = 0.02, 95% CI [−0.06, 0.10]) or a small effect (Experimental 2: r = 0.09, 95% CI [0.01, 0.16]) in the USA. We also replicated both experimental procedures in the UK to test whether the effect generalized to a value added tax system. Neither Experiment 1 (N = 595; r = 0.01, 95% CI [−0.07, 0.09]) nor Experiment 2 (N = 673; r = 0.03, 95% CI [−0.04, 0.11]) revealed an effect in the UK. Tax Aversion in hypothetical consumption decisions seems to be a smaller phenomenon than originally proposed and does not generalize to a value added tax system.

Politicking for the Public Library

ABSTRACTIn today's current political environment raising support for millage renewals, bond campaigns or even millage continuations for public libraries is affected by national politics, and a tendency towards tax aversion on principle across the country. The lessons we can learn from the governing boards of small and rural public libraries are worth raising up to a greater national consciousness. Board governance, community consciousness, and facilities management are clear and logical tools that elected boards of public libraries can use to politick for support of libraries.

Tax aversion in labor supply

In a real-effort laboratory experiment, labor supply decreases more with the introduction of a tax than with a financially equivalent drop in wages. This “tax aversion” is large in magnitude: when we decompose the productivity decrease that arises from taxation, we estimate that 40% is due to the lower net wage and the remaining 60% to tax aversion. This tax aversion affects labor supply more on the extensive margin (working less) than on the intensive margin (being less productive while working). The aversion is equally strong whether tax revenue goes to the U.S. government or back to the experimenter (a “laboratory tax”). We discuss the implications of our results for the relationship between labor supply and taxation.

Tax Aversion, Laffer Curve, and the Self-financing of Tax Cuts

High taxation is found to lead not to less labor supply but to more tax evasion and/or black labor. Investigating next what this implies for the course of the tax revenue and subsequently for the shape of the Laffer curve, this curve is found to change with the tax induced change of taxpayer preferences over tax compliance and tax aversion. Hence, the relevant Laffer curve when contemplating tax cuts should be the one after the last tax increase and cannot thereby be fully self-financed.

Security Returns and Tax Aversion Bias: Behavioral Responses to Tax Labels

Security Returns and Tax Aversion Bias: Behavioral Responses to Tax Labels

The impact of trial runs on the acceptability of environmental taxes: Experimental evidence

This paper examines the political difficulty of enacting welfare-enhancing environmental taxes. Using referenda in a market experiment with externalities, we investigate the effect of trial periods on the acceptability of two theoretically equivalent Pigouvian tax schemes. While implementing either tax is in subjects’ material self-interest, we find significant levels of opposition to both schemes, though the level differs considerably. Results show that trial runs can overcome initial tax aversion, which is robust across schemes, but a trial with one scheme does not affect the acceptability of the other. Trial periods also mitigate initial biases in preferences of alternative tax schemes.

Security Returns and Tax Aversion Bias: Behavioral Responses to Tax Labels

This article studies behavioral responses to taxes in financial markets. It is motivated by recent puzzling empirical evidence of taxable municipal bond yields significantly exceeding the level expected relative to tax exempt bonds. A behavioral explanation is a tax aversion bias, the phenomenon that people perceive an additional burden associated with tax payments. We conduct market experiments on the trading of differently taxed and labeled securities. The data show an initial overvaluation of tax payments that diminishes when subjects gain experience. The tax deduction of expenses is valued more than an equivalent tax exemption of earnings. We find that the persistence of the tax aversion bias critically depends on the quality of feedback. This suggests that tax aversion predominantly occurs in one-time, unfamiliar financial decisions and to a lesser extent in repetitive choices.

Experimental Evidence of Tax Salience and the Labor-Leisure Decision: Anchoring, Tax Aversion, or Complexity?

Recent research in marketing and public economics suggests that consumers underestimate the effects of taxes and surcharges on total purchase prices when taxes and surcharges are made less salient. The leading explanation is that consumers anchor on base prices and underadjust for surcharges. We perform experiments that: extend the tax salience and price partitioning literatures to the labor supply context; test the anchoring hypothesis by examining the effects of positive and negative wage surcharges on willingness to work; and test whether responses to price partitioning result from imperfect calculation of all-inclusive prices or from deeper preferences. We reject the anchoring hypothesis and find that subjects are less willing to work both when their wages are partitioned with positive and with negative surcharge components. We also find evidence that partitioned pricing effects result from cognitive limitations and possibly from responses to complexity.

Research on Legal Principles of Taxation as Indicated in the Constitution

Recently, taxation has been becoming a big issue in our society. Endless tax evasion and tax aversion by the taxpayers, and often and significantly changing tax law enough to cause confusion; on top of such national tax environment, the high tides of the internationalization of the taxation field are pressing in to make matters worse. More so in these times, the principles of tax law should be abided by from execution to action, to create a healthy taxation culture. The principles of tax law is the standard which can be a guidance to change, construct and adapt the tax law. We had experienced the small or big change of tax law, continuous tax-payers evasion and avoidance, unlawfulness of tax public servants, resistabce in taxpaying, and so on. In this circumstance, we should create the sound foundation of tax culture by thoroughly keeping the principle of tax law in its legislation through conduct. In those respects, we went to consider the principles of tax law.

The acceptability of efficiency-enhancing environmental taxes, subsidies and regulation: An experimental investigation

Public opposition to efficiency-enhancing policies is a significant barrier to addressing many environmental challenges. We use a market experiment to explore the acceptability of three types of instruments: Pigouvian taxes and subsidies, and quantity regulation. We find that overall more than half of voters oppose efficiency-enhancing policies. The results replicate previous findings of tax aversion, and, by providing evidence of subsidy and regulation aversion, the estimates also suggest the existence of a broader aversion to market intervention. Voters supported subsidies significantly more than taxes while supporting quantity regulation significantly less than taxes. This is consistent with norms against coercive policy instruments. Concerning a possible trade-off between acceptability and efficiency, estimates indicate differences across instruments. Support for regulation relative to not having any policy in place increases considerably if inefficient half measures are proposed instead of efficient full measures. This is less true for taxes and subsidies. The language used to describe the policy also influences acceptability, which is particularly apparent in the case of the tax instrument.