Brian D. Galle
Georgetown University Law Center
Washington University Law Review, Forthcoming
FSU College of Law, Public Law Research Paper No. 360
Georgetown Law and Economics Research Paper No. 1359865
FSU College of Law, Law, Business & Economics, No. 09-13
The idea of hidden taxes is as old as John Stuart Mill, but convincing evidence of their existence is new. In this Article, I survey and critique recent studies that claim to show that there are some taxes that can go unnoticed by those who pay them. I also develop the array of unanswered theoretical questions and policy implications that potentially follow from the studies' results.
Probably the central question for hidden taxes is whether they might enable government to raise revenue without also distorting the economy. If so, I argue, they have the potential to radically refashion the architecture of redistributive government. But, as I also show, whether that is true turns on the cognitive mechanisms that might permit taxes to go unnoticed. For example, if hidden taxes are caused not by rational ignorance but by cognitive shortcomings, then it is likely that the burden of a hidden tax will be borne disproportionately by poorer taxpayers, and vice-versa. Thus, I attempt to integrate with the tax literature some recent developments in our understanding of bounded rationality in consumers more generally.
[This version revises and substantially extends the earlier working paper, "Do Hidden Taxes Increase Welfare?"]
Number of Pages in PDF File: 57
Keywords: taxation, optimal taxation, behavioral law and economics, bounded rationality, hidden taxes, tax salience, redistribution, cognitive bias, debiasing
JEL Classification: D31, D63, D72, D83, H21, H77
Date posted: March 15, 2009 ; Last revised: June 16, 2011