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Tax policy design in the presence of social preferences: some experimental evidence

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  • Lucy F. Ackert
  • Jorge Martinez-Vazquez
  • Mark Rider

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 among 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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Bibliographic Info

Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2004-33.

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Date of creation: 2004
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Handle: RePEc:fip:fedawp:2004-33

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  1. Charness, Gary B & Rabin, Matthew, 2001. "Understanding Social Preferences With Simple Tests," University of California at Santa Barbara, Economics Working Paper Series qt0dc3k4m5, Department of Economics, UC Santa Barbara.
  2. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
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  15. Jorge Martinez-Vazquez & Mark Rider, 1996. "A Revelation Approach To Optimal Taxation," Public Finance Review, , vol. 24(4), pages 439-463, October.
  16. 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.
  17. Lucy F. Ackert & Bryan K. Church & Richard Deaves, 2003. "Emotion and financial markets," Economic Review, Federal Reserve Bank of Atlanta, issue Q2, pages 33-41.
  18. Hermalin, Benjamin E. & Isen, Alice M., 1999. "The Effect of Affect and Economic and Strategic Decision Making," Department of Economics, Working Paper Series qt4fn1b57s, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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Cited by:
  1. Heinemann, Friedrich & Kocher, Martin G., 2010. "Tax compliance under tax regime changes," Discussion Papers in Economics 11443, University of Munich, Department of Economics.
  2. Leonardo Becchetti & Giacomo Degli Antoni & Stefania Ottone & Nazaria Solferino, 2011. "Spectators versus stakeholders with or without veil of ignorance: the difference it makes for justice and chosen distribution criteria," Econometica Working Papers wp31, Econometica.
  3. Jorge Martinez-Vazquez & Mark Rider & Lucy F. Ackert & Ann Gillette, 2005. "Experimental Evidence for Tax Policy Design," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0517, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
  4. Hörisch, Hannah, 2008. "Is the veil of ignorance only a concept about risk? An experiment," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 230, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  5. Wolfgang Hoechtl & Rupert Sausgruber & Jean-Robert Tyran, 2011. "Inequality Aversion and Voting on Redistribution," Working Papers 2011-13, Faculty of Economics and Statistics, University of Innsbruck.
  6. Leonardo Becchetti & Giacomo Degli Antoni & Stefania Ottone & Nazaria Solferino, 2012. "Spectators Versus Stakeholders with/without Information: the Difference it Makes for Justice," CEIS Research Paper 221, Tor Vergata University, CEIS, revised 20 Feb 2012.

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