Tax Policy Design in the Presence of Social Preferences: Some Experimental Evidence
FRB of Atlanta Working Paper No. 2004-33
39 Pages Posted: 4 Jan 2006
Date Written: February 2006
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: Suggested Citation