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Comparing Direct and Indirect Taxation: The Influence of Framing on Tax Compliance

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Author Info
Robert Ullmann
Christoph Watrin
Abstract

Standard theory of the optimal mix of direct and indirect taxation implicitly assumes that compliance is not influenced by the framing of the taxes. According to our findings, this is not the case. Using an experimental approach, we examine whether framing the tax payment decision as income tax or consumption tax influences compliance. We find that median compliance is 10.2 percentage points higher in the income tax framing. Further, we find that subjects' reaction to a change in tax rates is comparable, but reaction towards a change in detection rates is higher in the consumption tax scheme. We conclude that behavioral patterns should be taken into account when drawing conclusions about the direct-indirect tax mix

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Article provided by Cattaneo University (LIUC) in its journal The European Journal of Comparative Economics.

Volume (Year): 5 (2008)
Issue (Month): 1 (June)
Pages: 23-56
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Handle: RePEc:liu:liucej:v:5:y:2008:i:1:p:23-56

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Related research
Keywords: Comparative analysis of tax systems ; behavioral public finance ; optimal tax mix ; noncompliance ; framing;

Find related papers by JEL classification:
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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