Reasoning and Institutions: Do Markets Facilitate Logical Reasoning in the Wason Selection Task?

Werner Güth (), M. Vittoria Levati and Rupert Sausgruber

Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: We consider a society composed of two regions. Each of them provides a public good whose benefits reach beyond local boundaries. In case of decentralization, taxes collected by members of a region are spent only on that region's public good. In case of centralization, tax receipts from the two regions are pooled and used to finance both public goods according to the population size of each region. The experiment shows that centralization induces lower tax morale and less efficient outcomes. The reasons are that centralization gives rise to an interregional incentive problem and creates inequalities in income between regions.

Keywords: Tax morale; fiscal federalism; public goods experiments (search for similar items in EconPapers)
JEL-codes: C91 H26 H41 H70 (search for similar items in EconPapers)
Pages: 26 pages
New Economics Papers: this item is included in nep-exp, nep-geo and nep-mic
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