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Fiscal Illusion and Fiscal Obfuscation:An Empirical Study of Tax Perception in Sweden

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  • Sanandaji, Tino

    ()
    (Research Institute of Industrial Economics (IFN))

  • Wallace, Björn

    ()
    (Stockholm School of Economics)

Abstract

In this paper we present survey evidence suggesting that there exists a sizeable fiscal illusion amongst the general public in Sweden. Respondents in a nation-wide and representative survey systematically underestimate the share of an ordinary worker’s income that is transferred to the public sector. Furthermore, we make a theoretical distinction between tax illusion and fiscal obfuscation, a proposed novel type of fiscal illusion. It has previously been assumed that fiscal illusion derives from a fragmentized tax system with many small, and largely invisible, taxes which tend to be ignored or underestimated by the tax payers. We hypothesize that this systematic bias could in addition emanate from misapprehensions of the real incidence of a tax. Evidence is presented that this could apply even when taxes are few and large, contrary to the tax complexity hypothesis. When this misperception derives from seemingly deliberate tax design and tax labeling, as appears to be the case with the payroll taxes in Sweden, we call it fiscal obfuscation.

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Bibliographic Info

Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 837.

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Length: 12 pages
Date of creation: 31 May 2010
Date of revision:
Handle: RePEc:hhs:iuiwop:0837

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Keywords: Fiscal Illusion; Fiscal Obfuscation; Tax Illusion; Tax Labeling; Tax Structure; Personal Income Taxation;

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  1. Chu, Hong-Yih, 2003. " The Dual-Illusion of Grants-in-Aid on Central and Local Expenditures," Public Choice, Springer, vol. 114(3-4), pages 349-59, March.
  2. Melo, Ligia, 2002. " The Flypaper Effect under Different Institutional Contexts: The Colombian Case," Public Choice, Springer, vol. 111(3-4), pages 317-45, June.
  3. Schokkaert, Erik, 1988. "Fiscal preferences and fiscal knowledge at the local level," Journal of Economic Psychology, Elsevier, vol. 9(1), pages 29-46, March.
  4. 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.
  5. Caplan, Bryan, 2001. " Rational Irrationality and the Microfoundations of Political Failure," Public Choice, Springer, vol. 107(3-4), pages 311-31, June.
  6. Pommerehne, Werner W & Schneider, Friedrich, 1978. "Fiscal Illusion, Political Institutions, and Local Public Spending," Kyklos, Wiley Blackwell, vol. 31(3), pages 381-408.
  7. Congleton, Roger D, 2001. " Rational Ignorance, Rational Voter Expectations, and Public Policy: A Discrete Informational Foundation for Fiscal Illusion," Public Choice, Springer, vol. 107(1-2), pages 35-64, April.
  8. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and taxation: theory and evidence," Finance and Economics Discussion Series 2009-11, Board of Governors of the Federal Reserve System (U.S.).
  9. Gemmell, Norman & Morrissey, Oliver & Pinar, Abuzer, 2002. " Fiscal Illusion and Political Accountability: Theory and Evidence from Two Local Tax Regimes in Britain," Public Choice, Springer, vol. 110(3-4), pages 199-224, March.
  10. Rebecca J. Campbell, 2004. "Leviathan and Fiscal Illusion in Local Government Overlapping Jurisdictions," Public Choice, Springer, vol. 120(3_4), pages 301-329, 09.
  11. Dornstein, Miriam, 1987. "Taxes: Attitudes and perceptions and their social bases," Journal of Economic Psychology, Elsevier, vol. 8(1), pages 55-76, March.
  12. Lewis, Alan, 1979. "An Empirical Assessment of Tax Mentality," Public Finance = Finances publiques, , vol. 34(2), pages 245-57.
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Cited by:
  1. Paulo Reis Mourao, 2008. "Towards a Puviani’s Fiscal Illusion Index," Hacienda Pública Española, IEF, vol. 187(4), pages 49-86, December.
  2. Mourão, Paulo, 2007. "Towards a Fiscal Illusion Index," MPRA Paper 9760, University Library of Munich, Germany, revised 28 Jul 2008.

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