Tax Complexity and Fiscal Illusion

B Heyndels and Carine Smolders ()

Public Choice, 1995, vol. 85, issue 1-2, 127-41

Abstract: By using the Hirschman-Herfindahl index (HHC) the traditional approach to the tax complexity hypothesis introduces a restriction into the fiscal illusion model which has no theoretical foundation. The authors analyze the existing framework of the tax complexity hypothesis in detail and propose to capture this complexity through a Hannah and Kay index. They extend the theoretical framework by considering the expected return on investment in information. The empirical tests show that the HHC overestimates the importance of size inequalities between different taxes while underestimating the impact of the number of taxes as a source of informational costs. The expected revenue hypothesis is not supported. Copyright 1995 by Kluwer Academic Publishers

Date: 1995
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