Foundations of Social Policy Support Under Heterogenous Tax Enforcement: Evidence from Survey and Laboratory Experiments

Abstract

What do citizens want from the government when the government functions poorly? We find that poorly functioning institutions play a significant role in citizens' redistributive preferences. Specifically, we argue that heterogeneity in tax enforcement creates both winners and losers, leading to under-explored cleavages in support for redistribution. Higher earners are more supportive of redistribution when they can more easily evade taxes. We use an original survey experiment to show that perceptions of pervasive tax evasion reduce support for social benefits. We then test our central argument using laboratory experiments simulating earned income and heterogeneity in tax evasion. We find that high earners prefer more redistribution when they can under-report their earned income, but only when the ability to evade taxes is heterogeneous. Our results indicate a nuanced causal explanation that counters some traditional explanations.

Keywords: Redistribution, institutional Quality, Tax Evasion, Heterogenous Enforcement, Preferences, Experiments,

JEL Classification: D31, H23, H24, H26, O17