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Discriminatory Taxes are Unpopular - Even when they are Efficient and Distributionally Fair

  • Rupert Sausgruber

    (Department of Economics, Vienna University of Economics and Business)

  • Jean-Robert Tyran

    (Department of Economics, Copenhagen University)

We explore the political acceptance of taxation in commodity markets. Participants in our experiment earn incomes by trading and must collectively choose one of 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 are unpopular, as predicted. Surprisingly, however, DT remain 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.

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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 13-14.

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Length: 33 pages
Date of creation: Nov 2013
Date of revision:
Handle: RePEc:kud:kuiedp:1314
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