Fiscal Illusion and Fiscal Obfuscation: An Empirical Study of Tax Perception in Sweden

13 Pages Posted: 4 Jun 2010  

Tino Sanandaji

affiliation not provided to SSRN

Björn Wallace

University of Cambridge - Faculty of Economics; Stockholm School of Economics - Department of Economics

Date Written: June 2, 2010

Abstract

In this paper we present survey evidence suggesting that there exists a sizeable fiscal illusion amongst the general public in Sweden. Respondents in a nation-wide and representative survey systematically underestimate the share of an ordinary worker’s income that is transferred to the public sector. Furthermore, we make a theoretical distinction between tax illusion and fiscal obfuscation, a proposed novel type of fiscal illusion. It has previously been assumed that fiscal illusion derives from a fragmentized tax system with many small, and largely invisible, taxes which tend to be ignored or underestimated by the tax payers. We hypothesize that this systematic bias could in addition emanate from misapprehensions of the real incidence of a tax. Evidence is presented that this could apply even when taxes are few and large, contrary to the tax complexity hypothesis. When this misperception derives from seemingly deliberate tax design and tax labeling, as appears to be the case with the payroll taxes in Sweden, we call it fiscal obfuscation.

Keywords: Fiscal Illusion, Fiscal Obfuscation, Tax Illusion, Tax Labeling, Tax Structure, Personal Income Taxation

JEL Classification: H11, H22, H24, H30

Suggested Citation

Sanandaji, Tino and Wallace, Björn, Fiscal Illusion and Fiscal Obfuscation: An Empirical Study of Tax Perception in Sweden (June 2, 2010). IFN Working Paper No. 837. Available at SSRN: https://ssrn.com/abstract=1619268 or http://dx.doi.org/10.2139/ssrn.1619268

Tino Sanandaji (Contact Author)

affiliation not provided to SSRN ( email )

Björn Wallace

University of Cambridge - Faculty of Economics ( email )

Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden

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