The Humpty Dumpty Blues: Disaggregation Bias in the Evaluation Of Tax Systems

32 Pages Posted: 13 Feb 2002

See all articles by Edward J. McCaffery

Edward J. McCaffery

USC Gould School of Law

Jonathan Baron

University of Pennsylvania - Department of Psychology

Date Written: January 28, 2002

Abstract

Three experiments carried out on the World Wide Web assessed the consistency of attitudes toward various tax regimes that differed in their overall levels and degrees of tax rate graduation in the presence of framing manipulations. The regimes had two components: an income and a payroll tax. One frame involved aggregation. Subjects were asked either to design a single, global tax system or to vary one component of a tax system (payroll or income tax) with the other component held constant. The idea was to replicate the effects of income tax reform given a constant payroll tax system. Consistent with the experimental hypothesis - though not with "rational" decision making - subjects focused on the component they were asked to manipulate and did not respond fully to changes in the other part, across conditions, rejecting an underadjustment bias as well as a framing effect. The results are akin to Thaler's "mental account" model for personal financial behavior. A second manipulation involved a "metric" frame: whether putative tax burdens were given in dollars or percent terms. Once again consistent with the experimental hypothesis, subjects preferred higher rates of graduation when matters were stated in percent terms. The results point to the lability of public opinion about important questions of public finance.

Suggested Citation

McCaffery, Edward J. and Baron, Jonathan, The Humpty Dumpty Blues: Disaggregation Bias in the Evaluation Of Tax Systems (January 28, 2002). USC Law School, Olin Research Paper No. 02-1; USC CLEO Research Paper No. C02-1. Available at SSRN: https://ssrn.com/abstract=298648 or http://dx.doi.org/10.2139/ssrn.298648

Edward J. McCaffery (Contact Author)

USC Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States
213-740-2567 (Phone)
213-740-5502 (Fax)

Jonathan Baron

University of Pennsylvania - Department of Psychology ( email )

3815 Walnut Street
Philadelphia, PA 19104-6196
United States
215-898-6918 (Phone)

HOME PAGE: http://www.sas.upenn.edu/~baron

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