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Reasoning and Institutions: Do Markets Facilitate Logical Reasoning in the Wason Selection Task?

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  • Werner Güth
  • M. Vittoria Levati
  • Rupert Sausgruber

Abstract

We consider a society composed of two regions. Each of them provides a public good whose benefits reach beyond local boundaries. In case of decentralization, taxes collected by members of a region are spent only on that region's public good. In case of centralization, tax receipts from the two regions are pooled and used to finance both public goods according to the population size of each region. The experiment shows that centralization induces lower tax morale and less efficient outcomes. The reasons are that centralization gives rise to an interregional incentive problem and creates inequalities in income between regions.

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Paper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2003-05.

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Length: 26 pages
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Handle: RePEc:esi:discus:2003-05

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Keywords: Tax morale; fiscal federalism; public goods experiments;

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