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Fiscal illusion at the individual level

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  • Kaetana Numa

    (King’s College London)

Abstract

This study uses a survey experiment to test for fiscal illusion—the idea that taxpayers systematically misperceive their tax liabilities and contributions to public services. To date, the voluminous literature on fiscal illusion has not analyzed how better information on personalized total tax liabilities and contributions to public services would influence fiscal preferences. This is the first study to inform participants of their individual fiscal balance sheets comprising all major taxes regularly paid by taxpayers and their allocation to public services, thus comprehensively covering both sides of the fiscal account. This aim is achieved by embedding a novel personalized fiscal calculator in an online survey experiment administered to a representative sample of UK employees. The experiment finds evidence of fiscal illusion: providing personalized fiscal information reduces support for higher taxes and spending and increases support for lower taxes and spending. These findings indicate that taxpayers underestimate both their tax liabilities and the costs of public services.

Suggested Citation

  • Kaetana Numa, 2025. "Fiscal illusion at the individual level," Public Choice, Springer, vol. 203(1), pages 105-137, April.
    • Handle: RePEc:kap:pubcho:v:203:y:2025:i:1:d:10.1007_s11127-024-01187-9
    DOI: 10.1007/s11127-024-01187-9
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    More about this item

    Keywords

    Fiscal illusion; Tax perception; Tax preferences; Public spending preferences; Information; Survey experiment;
    All these keywords.

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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