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Tax Policy Design in The Presence of Social Preferences: Some Experimental Evidence

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Author Info
Lucy F. Ackert ()
Jorge Martinez-Vazquez () (Andrew Young School of Policy Studies, Georgia State University)
Mark Rider () (Andrew Young School of Policy Studies, Georgia State University)

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Abstract

This paper reports the results of experiments designed to examine whether a taste for fairness affects people’s preferred tax structure. Building on the Fehr and Schmidt (1999) model we devise a simple test for the presence of social preferences in voting for alternative tax structures. The experimental results show that individuals demonstrate concern for their own payoff and inequality aversion in choosing between alternative tax structures. However, concern for redistribution decreases when it leads to increasing deadweight losses. Our findings have important implications for the design of optimal tax theory.

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Paper provided by International Studies Program, Andrew Young School of Policy Studies, Georgia State University in its series International Studies Program Working Paper Series, at AYSPS, GSU with number paper0425.

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Length: 34 pages
Date of creation: 01 Nov 2004
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Handle: RePEc:ays:ispwps:paper0425

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Keywords: tax policy social preferences fairness

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This paper has been announced in the following NEP Reports: 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.:
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    Other versions:
  4. Camerer, Colin, . "Progress and Behavioral Game Theory," Working Papers 1004, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  5. Guth, Werner & Tietz, Reinhard, 1990. "Ultimatum bargaining behavior : A survey and comparison of experimental results," Journal of Economic Psychology, Elsevier, vol. 11(3), pages 417-449, September. [Downloadable!] (restricted)
  6. Hettich, Walter & Winer, Stanley L, 1988. "Economic and Political Foundations of Tax Structure," American Economic Review, American Economic Association, vol. 78(4), pages 701-12, September. [Downloadable!] (restricted)
  7. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series 1042, Department of Economics, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  8. Norman Gemmell & Oliver Morrissey & Abuzer Pinar, 2004. "Tax perceptions and preferences over tax structure in the united kingdom," Economic Journal, Royal Economic Society, vol. 114(493), pages F117-F138, 02. [Downloadable!] (restricted)
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  14. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers iewwp004, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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  15. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September. [Downloadable!] (restricted)
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  17. Camerer, Colin F, 1997. "Progress in Behavioral Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 11(4), pages 167-88, Fall. [Downloadable!] (restricted)
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  19. Olof Johansson-Stenman & Fredrik Carlsson & Dinky Daruvala, 2002. "Measuring Future Grandparents" Preferences for Equality and Relative Standing," Economic Journal, Royal Economic Society, vol. 112(479), pages 362-383, April. [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. Hörisch, Hannah, 2007. "Is the veil of ignorance only a concept about risk? An experiment," Discussion Papers in Economics 1362, University of Munich, Department of Economics. [Downloadable!]
  2. Jorge Martinez-Vazquez & Mark Rider & Lucy F. Ackert & Ann Gillette, 2005. "Experimental Evidence for Tax Policy Design," International Studies Program Working Paper Series, at AYSPS, GSU paper0517, International Studies Program, Andrew Young School of Policy Studies, Georgia State University. [Downloadable!]
  3. Sanjit Dhami & Ali al-Nowaihi, 2006. "Fairness and Direct Democracy," Discussion Papers in Economics 06/11, Department of Economics, University of Leicester, revised Nov 2007. [Downloadable!]
  4. Sanjit Dhami & Ali al-Nowaihi, 2008. "Social Preferences and Redistribution Under Direct Democracy," Discussion Papers in Economics 08/11, Department of Economics, University of Leicester. [Downloadable!]
  5. Sanjit Dhami & Ali al-Nowaihi, 2007. "Existence of a Condorcet winner when voters have other-regarding preferences," Discussion Papers in Economics 07/16, Department of Economics, University of Leicester, revised Jun 2008. [Downloadable!]
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