The Case for Reducing the Market Salience of Taxation
National Tax Association, Proceedings of the 103rd Annual Conference, 2010
6 Pages Posted: 23 Mar 2012 Last revised: 14 Nov 2012
Date Written: November 29, 2011
This paper considers a narrow but important question that has arisen in the literature on tax salience. Contrary to the predictions of neoclassical economic theory, a number of studies have demonstrated that, in response to certain presentations of tax prices, consumers do not always fully factor tax costs into their market decisions. This result indicates that policy makers could opt for tax price presentation techniques that would reduce the market salience of taxation, thereby likely also reducing the deadweight loss otherwise caused by taxpayers distorting their behavior to avoid taxation. Assuming that these experimental results are sound, and bracketing the many other reservations possible as to the manipulation of tax salience, we argue that it is generally normatively desirable to reduce the market salience of taxation. In particular, we refute several specific critiques of reducing market salience forwarded by the existing literature. We argue that, at least based on our current empirical knowledge, these critiques are exaggerated.
Keywords: tax salience
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