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Behavioral Public Finance: Tax Design as Price Presentation

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Author Info
Aradhna Krishna ()
Joel Slemrod ()

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Abstract

In this essay we review the evidence from marketing research about price presentation of consumer products and discuss how these lessons have been applied—consciously or unconsciously—in the design of the U.S. tax system. Our perspective is that, in most situations, the designers of the tax system attempt to minimize the perceived burden of any given amount of tax collections. We allow, though, that in certain situations an additional goal is to maximize the perceived burden of others. We also investigate how, when the objective is to encourage a particular activity, price presentation may enhance the achievement of that goal for a given amount of tax subsidy. We conclude by addressing the ethical and normative implications of price presentation in the tax system. Copyright Kluwer Academic Publishers 2003

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File URL: http://hdl.handle.net/10.1023/A:1023337907802
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Publisher Info
Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 10 (2003)
Issue (Month): 2 (March)
Pages: 189-203
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Handle: RePEc:kap:apfinm:v:10:y:2003:i:2:p:189-203

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Web page: http://springerlink.metapress.com/link.asp?id=102851

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Related research
Keywords: tax policy; behavioral economics; price presentation;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Joel Slemrod & Shlomo Yitzhaki, 1994. "Analyzing the standard deduction as a presumptive tax," International Tax and Public Finance, Springer, vol. 1(1), pages 25-34, February. [Downloadable!] (restricted)
  2. V. Joseph Hotz & John Karl Scholz, 2001. "The Earned Income Tax Credit," NBER Working Papers 8078, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Dollery, Brian E & Worthington, Andrew C, 1996. " The Empirical Analysis of Fiscal Illusion," Journal of Economic Surveys, Blackwell Publishing, vol. 10(3), pages 261-97, September.
  4. Biswas, Abhijit & Wilson, Elizabeth J. & Licata, Jane W., 1993. "Reference pricing studies in marketing: A synthesis of research results," Journal of Business Research, Elsevier, vol. 27(3), pages 239-256, July. [Downloadable!] (restricted)
  5. Joel Slemrod, 2001. "A General Model of the Behavioral Response to Taxation," International Tax and Public Finance, Springer, vol. 8(2), pages 119-128, March. [Downloadable!] (restricted)
    Other versions:
  6. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March. [Downloadable!] (restricted)
  7. Levin, Irwin P. & Schneider, Sandra L. & Gaeth, Gary J., 1998. "All Frames Are Not Created Equal: A Typology and Critical Analysis of Framing Effects," Organizational Behavior and Human Decision Processes, Elsevier, vol. 76(2), pages 149-188, November. [Downloadable!] (restricted)
  8. Johar, Gita Venkataramani & Simmons, Carolyn J, 2000. " The Use of Concurrent Disclosures to Correct Invalid Inferences," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 26(4), pages 307-22, March.
  9. J. K. Scholz, . "The earned income tax credit: Participation, compliance, and antipoverty effectiveness," Institute for Research on Poverty Discussion Papers 1020-93, University of Wisconsin Institute for Research on Poverty. [Downloadable!]
  10. Schindler, Robert M & Kirby, Patrick N, 1997. " Patterns of Rightmost Digits Used in Advertised Prices: Implications for Nine-Ending Effects," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 24(2), pages 192-201, September.
  11. Joel Slemrod, 2002. "Trust in Public Finance," NBER Working Papers 9187, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Rupert Sausgruber & Jean-Robert Tyran, . "Testing the Mill hypothesis of fiscal illusion," Discussion Papers 04-18, University of Copenhagen. Department of Economics, revised Sep 2004. [Downloadable!]
    Other versions:
  2. Blumkin, Tomer & Ruffle , Bradley J. & Ganun , Yosef, 2007. "Are Income and Consumption Taxes Ever Really Equivalent? Evidence from a Real-Effort Experiment with Real Goods," MPRA Paper 6479, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  3. Werner Gueth & Rupert Sausgruber, 2004. "Tax Morale and Optimal Taxation," Papers on Strategic Interaction 2004-12, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
    Other versions:
  4. Rupert Sausgruber & Jean-Robert Tyran, 2008. "Tax Salience, Voting, and Deliberation," Discussion Papers 08-21, University of Copenhagen. Department of Economics. [Downloadable!]
  5. Tomer Blumkin & Ehud Menirav, 2009. "Framing the rabbit to snare the votes," Social Choice and Welfare, Springer, vol. 32(4), pages 603-634, May. [Downloadable!] (restricted)
  6. Raj Chetty & Adam Looney & Kory Kroft, 2007. "Salience and Taxation: Theory and Evidence," NBER Working Papers 13330, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Werner Güth & Rupert Sausgruber, 2008. "Voting between tax regimes to fund a public good," Economics of Governance, Springer, vol. 9(4), pages 287-303, October. [Downloadable!] (restricted)
  8. Robert Ullmann & Christoph Watrin, 2008. "Comparing Direct and Indirect Taxation: The Influence of Framing on Tax Compliance," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 5(1), pages 23-56, June. [Downloadable!]
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