A Taste for Taxes: Minimizing Distortions Using Political Preferences
21 Pages Posted: 3 Apr 2017
Date Written: March 31, 2017
We conduct an experiment with online workers to assess whether the distortionary effect of a tax is sensitive to the ideological match between taxpayer and tax expenditures. We find that, among self-identified political moderates, the labor supply elasticity with respect to the net of tax wage is significantly smaller when individuals pay taxes to a favored government agency as compared to an unfavored one. While the tax has a significant distortionary effect in the latter case, with a point estimate for the labor supply elasticity of approximately 0.75, the elasticity point estimate is virtually zero when taxes go to a favored agency. There is also an increase in total output for the matched population. There is no evidence of a similar effect for those on the ends of the ideological spectrum.
Keywords: taxes, labor supply, efficiency cost of taxation, experiment, political preferences, ideology, distortions, expenditures
JEL Classification: H21, J22, C9, D03, H50
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