Tax Transparency and Social Welfare: The Role of Government Commitment

40 Pages Posted: 10 Jun 2021 Last revised: 31 Aug 2021

See all articles by Chishio Furukawa

Chishio Furukawa

Department of Economics, Yokohama National University; affiliation not provided to SSRN

Multiple version iconThere are 2 versions of this paper

Date Written: June 8, 2021

Abstract

Although transparency has long been held as the key principle of taxation, recent behavioral public finance theory has shown that it may reduce social welfare as inattention can alleviate behavioral distortions. This paper extends this analysis by modeling inattention as a noise in the tax rate signal received by Bayesian citizens. In equilibrium, we find that transparency will improve social welfare by ensuring the government's ability to commit to a fairly low tax rate that is socially optimal. Moreover, this model yields new sufficient statistics formulas that inform whether a policy effort to ensure tax transparency is socially worthwhile.

Keywords: tax transparency, commitment, inattention

JEL Classification: H21, D03, D83

Suggested Citation

Furukawa, Chishio, Tax Transparency and Social Welfare: The Role of Government Commitment (June 8, 2021). Available at SSRN: https://ssrn.com/abstract=3862433 or http://dx.doi.org/10.2139/ssrn.3862433

Chishio Furukawa (Contact Author)

Department of Economics, Yokohama National University ( email )

Tokiwadai, Hodogaya-Ku, Yokohama
Yokohama, Kanagawa
Japan

affiliation not provided to SSRN

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