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Inattention and the Taxation Bias

Author

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  • Boccanfuso, Jérémy

    (University of Bologna)

  • Ferey, Antoine

    (LMU Munich)

Abstract

This paper shows that agent inattention to taxes generates a time-inconsistency problem in the choice of tax policy. In equilibrium, inattention leads to inefficiently high tax rates and a taxation bias emerges. Combining structural and sufficient statistics approaches, we quantify the magnitude and the welfare effects of this policy distortion for US income tax rates, and find that the taxation bias is large, alters the progressivity of income taxes, and significantly reduces social welfare. Overall, our findings shed new light on the policy and welfare implications of inattention and misperceptions.

Suggested Citation

  • Boccanfuso, Jérémy & Ferey, Antoine, 2022. "Inattention and the Taxation Bias," Rationality and Competition Discussion Paper Series 323, CRC TRR 190 Rationality and Competition.
    • Handle: RePEc:rco:dpaper:323
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    References listed on IDEAS

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    Cited by:

    1. Blesse, Sebastian & Buhlmann, Florian & Doerrenberg, Philipp, 2019. "Do people really want a simple tax system? Evidence on preferences towards income tax simplification," ZEW Discussion Papers 19-058, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    optimal taxation; inattention;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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