IDEAS home Printed from https://ideas.repec.org/a/sae/pubfin/v45y2017i1p97-117.html

Do Individuals Perceive Income Tax Rates Correctly?

Author

Listed:
  • Michael Gideon

Abstract

This article uses data from survey questions fielded on the 2011 wave of the Cognitive Economics Study to uncover systematic errors in perceptions of income tax rates. First, when asked about the marginal tax rates (MTRs) for households in the top tax bracket, respondents underestimate the top MTR on wages and salary income, overestimate the MTR on dividend income, and therefore significantly underestimate the currently tax-advantaged status of dividend income. Second, when analyzing the relationship between respondents’ self-reported average tax rates (ATRs) and MTRs, many people do not understand the progressive nature of the federal income tax system. Third, when comparing self-reported tax rates with those computed from self-reported income, respondents systematically overestimate their ATR while reported MTR are accurate at the mean, the responses are consistent with underestimation of tax schedule progressivity.

Suggested Citation

  • Michael Gideon, 2017. "Do Individuals Perceive Income Tax Rates Correctly?," Public Finance Review, , vol. 45(1), pages 97-117, January.
    • Handle: RePEc:sae:pubfin:v:45:y:2017:i:1:p:97-117
    DOI: 10.1177/1091142115615670
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/1091142115615670
    Download Restriction: no
    File URL: https://libkey.io/10.1177/1091142115615670?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Slemrod, Joel, 2006. "The Role of Misconceptions in Support for Regressive Tax Reform," National Tax Journal, National Tax Association;National Tax Journal, vol. 59(1), pages 57-75, March.
    2. Slemrod,Joel, 1997. "Tax Progressivity and Income Inequality," Cambridge Books, Cambridge University Press, number 9780521587761, January.
    3. Jeffrey L. Hoopes & Daniel H. Reck & Joel Slemrod, 2015. "Taxpayer Search for Information: Implications for Rational Attention," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 177-208, August.
    4. Raj Chetty & John N. Friedman & Emmanuel Saez, 2013. "Using Differences in Knowledge across Neighborhoods to Uncover the Impacts of the EITC on Earnings," American Economic Review, American Economic Association, vol. 103(7), pages 2683-2721, December.
    5. Norman Gemmell & Oliver Morrissey & Abuzer Pinar, 2004. "Tax perceptions and preferences over tax structure in the united kingdom," Economic Journal, Royal Economic Society, vol. 114(493), pages 117-138, February.
    6. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
    7. Fujii, Edwin T & Hawley, Clifford B, 1988. "On the Accuracy of Tax Perceptions," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 344-347, May.
    8. Arie Kapteyn & Jelmer Y. Ypma, 2007. "Measurement Error and Misclassification: A Comparison of Survey and Administrative Data," Journal of Labor Economics, University of Chicago Press, vol. 25(3), pages 513-551.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Antonio Abatemarco & Roberto Dell’Anno, 2020. "Fiscal illusion and progressive taxation with retrospective voting," Economic and Political Studies, Taylor & Francis Journals, vol. 8(2), pages 246-273, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Alexander M. Gelber & Damon Jones & Daniel W. Sacks, 2013. "Earnings Adjustment Frictions: Evidence From Social Security Earnings Test," Working Papers 13-50, Center for Economic Studies, U.S. Census Bureau.
    2. Stefanie Stantcheva, 2021. "Understanding Tax Policy: How do People Reason?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(4), pages 2309-2369.
    3. Jane G. Gravelle & Sean Lowry, 2016. "The Affordable Care Act, Labor Supply, and Social Welfare," National Tax Journal, National Tax Association;National Tax Journal, vol. 69(4), pages 863-882, December.
    4. Sydnee Caldwell & Scott Nelson & Daniel Waldinger, 2023. "Tax Refund Uncertainty: Evidence and Welfare Implications," American Economic Journal: Applied Economics, American Economic Association, vol. 15(2), pages 352-376, April.
    5. James M. Poterba & Arturo Ramirez Verdugo, 2008. "Portfolio Substitution and the Revenue Cost of Exempting State and Local Government Interest Payments from Federal Income Tax," NBER Working Papers 14439, National Bureau of Economic Research, Inc.
    6. Burkhauser, Richard V. & Larrimore, Jeff & Simon, Kosali I., 2012. "A "Second Opinion" on the Economic Health of the American Middle Class," National Tax Journal, National Tax Association;National Tax Journal, vol. 65(1), pages 7-32, March.
    7. Naomi E. Feldman & Peter Katuscak, 2006. "Should the Average Tax Rate Be Marginalized?," CERGE-EI Working Papers wp304, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    8. Alex Rees-Jones & Dmitry Taubinsky, 2018. "Taxing Humans: Pitfalls of the Mechanism Design Approach and Potential Resolutions," Tax Policy and the Economy, University of Chicago Press, vol. 32(1), pages 107-133.
    9. Bastani, Spencer & Giebe, Thomas & Miao, Chizheng, 2020. "Ethnicity and tax filing behavior," Journal of Urban Economics, Elsevier, vol. 116(C).
    10. Florian Buhlmann & Benjamin Elsner & Andreas Peichl, 2018. "Tax refunds and income manipulation: evidence from the EITC," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(6), pages 1490-1518, December.
    11. Marino, Maria & Iacono, Roberto & Mollerstrom, Johanna, 2023. "(Mis-)perceptions, information, and political polarization," LSE Research Online Documents on Economics 119268, London School of Economics and Political Science, LSE Library.
    12. Laura Kawano, 2014. "The Dividend Clientele Hypothesis: Evidence from the 2003 Tax Act," American Economic Journal: Economic Policy, American Economic Association, vol. 6(1), pages 114-136, February.
    13. Drahomir Klimsa & Robert Ullmann, 2023. "Threshold-dependent tax enforcement and the size distribution of firms: evidence from Germany," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(4), pages 1002-1035, August.
    14. Emmanuel Farhi & Xavier Gabaix, 2020. "Optimal Taxation with Behavioral Agents," American Economic Review, American Economic Association, vol. 110(1), pages 298-336, January.
    15. Bradley Hardy & Charles Hokayem, 2023. "The Effects of the 2021 Child Tax Credit on Racial and Ethnic Inequalities in Well-Being," The ANNALS of the American Academy of Political and Social Science, , vol. 710(1), pages 157-171, November.
    16. Margaret Katherine McKeehan, 2018. "The EITC and the labor supply of adult dependents: direct effects and family income effects," Review of Economics of the Household, Springer, vol. 16(3), pages 791-807, September.
    17. Jannis Bischof & Joachim Gassen & Anna Rohlfing-Bastian & Davud Rostam-Afschar & Caren Sureth-Sloane, 2024. "Accounting for Transparency: a Framework and Three Applications in Tax, Managerial, and Financial Accounting," Schmalenbach Journal of Business Research, Springer, vol. 76(4), pages 573-611, December.
    18. Emmanuel Saez, 2004. "Reported Incomes and Marginal Tax Rates, 1960–2000: Evidence and Policy Implications," NBER Chapters, in: Tax Policy and the Economy, Volume 18, pages 117-174, National Bureau of Economic Research, Inc.
    19. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
    20. Alex Rees-Jones & Dmitry Taubinsky, 2020. "Measuring “Schmeduling”," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(5), pages 2399-2438.

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:pubfin:v:45:y:2017:i:1:p:97-117. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.