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

Rupert Sausgruber, Jean-Robert Tyran

Publication: Working/Discussion PaperWU Working Paper

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 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. (authors' abstract)
Original languageEnglish
Place of PublicationVienna
PublisherWU Vienna University of Economics and Business
Publication statusPublished - 1 Nov 2013

Publication series

NameWU International Taxation Research Paper Series
No.2013-08

WU Working Paper Series

  • WU International Taxation Research Paper Series

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