Inattention and the Taxation Bias

Jérémy Boccanfuso and Antoine Ferey

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Abstract: This paper shows that inattention to taxes generates a time-inconsistency problem in the choice of tax policy, leading to higher taxes in equilibrium. These discretionary tax increases are inefficient as they are deviations from the socially optimal commitment policy. We call these deviations a taxation bias. Combining sufficient statistics and structural approaches, we quantify the magnitude of this policy distortion for the U.S. redistributive tax-transfer system. We find that the taxation bias ranges between 3 and 8 percentage points, alters tax-transfer progressivity, and has significant welfare effects. Overall, our findings shed new light on the implications of inattention and misperceptions.

Keywords: inattention; misperceptions; optimal taxation; policy distortions (search for similar items in EconPapers)
Date: 2023-10-06
Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-04603450v1
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Published in Journal of the European Economic Association, 2023, 66 p. ⟨10.1093/jeea/jvad056⟩

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Related works:
Journal Article: Inattention and the Taxation Bias (2024)
Working Paper: Inattention and the Taxation Bias (2023)
Working Paper: Inattention and the Taxation Bias (2022)
Working Paper: Inattention and the Taxation Bias (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04603450

DOI: 10.1093/jeea/jvad056

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