Tax avoidance and voting on income redistribution: A real-effort task experiment

In this paper, we analyze theoretically and experimentally the relationship of tax avoidance and voting decisions over the size of taxation. We propose a basic model of redistributive politics in which there are two types of voters (skilled and unskilled workers) and two exogenous tax schemes to vote for. We design a laboratory experiment to test the results of the model. We consider a control treatment where tax avoidance is not feasible. In the main treatments, only the high skilled workers are allowed to avoid taxes with a fixed cost that varies in two different treatments. We also consider two additional treatments with explicit or implicit information about tax avoidance decisions. The impossibility of tax avoidance favors the support for the high tax rate. A sufficiently high cost of tax avoidance makes unskilled workers vote mostly for a low tax rate and skilled workers opt for almost no tax avoidance. Nevertheless, if tax avoidance is cheap enough, a higher than predicted proportion of unskilled workers still vote for the low tax rate, even in a high tax avoidance context. The only effect of information occurs when the cost of tax avoidance is low, and it entails a decrease in tax avoidance levels. Finally, regardless the tax avoidance cost, a higher rate of tax avoidance yields to a higher likelihood of unskilled workers voting for the high tax rate, and, vice versa, a higher probability of voting for the high tax rate results in a higher tax avoidance level.