Anandi Mani, Sharun Mukand & Daniel Sgroi
Explaining Attitudes towards Taxation
Abextract : Standard theory suggests that the rich would like to see lower tax rates, but also that individuals may have social preferences that are independent of their wealth which may in part govern attitudes towards taxation. More recently their have been two important contributions that may enable us to gain more insight into tax attitudes. First, theoretical work has discussed "self-serving biases" that enable individuals to distort their memories of events in ways that boost their utility. Second, empirical studies have found significant differences in tax attitudes which seem to correlate with attitudes towards the importance of luck in life. We merge these two ideas in a controlled laboratory experiment (involving in excess of 450 participants) that allows individuals to make money through effort and luck, and to select tax rates on the resulting earnings under different information treatments. We find strong evidence that (1) individuals care about the source of the wealth of those that are taxed ; (2) the source of wealth of the tax-setter also matters a great deal and (3) individuals are willing to bias their attitudes in ways that benefit their own self-image. We thereby provide empirical support for the importance of the source of wealth (of the tax-payer and tax-setter) and the role of self-serving biases in establishing how individuals form their tax attitudes.