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Discriminatory taxes are unpopular—Even when they are efficient and distributionally fair

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  • Sausgruber, Rupert
  • Tyran, Jean-Robert

Abstract

We explore the political acceptance of taxation in commodity markets. Participants in our experiment earn incomes by trading and must collectively choose one of the two tax regimes to raise a given tax revenue. A “uniform tax” (UT) imposes the same tax rate on all markets and is fair in that it yields the same – but low – income to participants in all markets. The “discriminatory tax” (DT) imposes a higher burden on markets with inelastic demand and is therefore efficient but it is also unfair in that incomes are unequal across markets. We find that DT is unpopular, as predicted. Surprisingly, however, DT remains unpopular when they are both efficient and produce a fair (equal) distribution. We conclude that non-discrimination (equal treatment) is a salient fairness principle in taxation that shapes voting on commodity taxes above and beyond concerns for efficiency and equal distribution.

Suggested Citation

  • Sausgruber, Rupert & Tyran, Jean-Robert, 2014. "Discriminatory taxes are unpopular—Even when they are efficient and distributionally fair," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 463-476.
  • Handle: RePEc:eee:jeborg:v:108:y:2014:i:c:p:463-476
    DOI: 10.1016/j.jebo.2013.12.022
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    Keywords

    Taxation; Behavioral public economics; Voting; efficiency; Fairness;

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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