Tax Policy Design in the Presence of Social Preferences: Some Experimental Evidence

Andrew Young School Research Paper No. 06-03

FRB of Atlanta Working Paper No. 2004-33

39 Pages Posted: 4 Jan 2006

See all articles by Lucy F. Ackert

Lucy F. Ackert

Kennesaw State University - Michael J. Coles College of Business

Jorge Martinez-Vazquez

Georgia State University - Andrew Young School of Policy Studies

Mark Rider

Georgia State University - Department of Economics

Date Written: February 2006

Abstract

This paper reports the results of experiments designed to examine whether a taste for fairness affects people's preferred tax structure. Building on the Fehr and Schmidt (1999) model, we devise a simple test for the presence of social preferences in voting for alternative tax structures. The experimental results show that individuals demonstrate concern for their own payoff and inequality aversion in choosing among alternative tax structures. However, concern for redistribution decreases when it leads to increasing deadweight losses. Our findings have important implications for the design of optimal tax theory.

Keywords: Tax policy, social preferences, fairness

JEL Classification: C92, D63, H21, H23

Suggested Citation

Ackert, Lucy F. and Martinez-Vazquez, Jorge and Rider, Mark, Tax Policy Design in the Presence of Social Preferences: Some Experimental Evidence (February 2006). Andrew Young School Research Paper No. 06-03, FRB of Atlanta Working Paper No. 2004-33, Available at SSRN: https://ssrn.com/abstract=641723 or http://dx.doi.org/10.2139/ssrn.641723

Lucy F. Ackert (Contact Author)

Kennesaw State University - Michael J. Coles College of Business ( email )

1000 Chastain Road
Department of Economics and Finance
Kennesaw, GA 30144
United States
770-423-6111 (Phone)
770-499-3209 (Fax)

Jorge Martinez-Vazquez

Georgia State University - Andrew Young School of Policy Studies ( email )

University Plaza
PO Box 3992
Atlanta, GA 30302-3992
United States
404-651-3990 (Phone)
404-651-3996 (Fax)

Mark Rider

Georgia State University - Department of Economics ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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