Tax price effects on attitudes to hypothecated increases

John Hall and Ian Preston
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John Hall: Institute for Fiscal Studies

No W98/06, IFS Working Papers from Institute for Fiscal Studies

Abstract: Perceptions of private benefits from hypothecated tax increases may be correlated with income either because individuals with different incomes are more or less interested in public services or because they anticipate bearing different shares of the implied tax burden. Without being specific about the nature of the tax instrument involved in a way that permits tax prices to vary independently of income, it can be difficult to distinguish between income and price effects in responses to surveys on this subject. We report on analysis of cross-sectional data from the United Kingdom in which respondents have been randomly allocated to different but precisely specified tax instruments. The data also contains information on perceptions of implied tax costs. We estimate perceptions of tax costs and attitudes on tax increases jointly, finding little effect from tax prices on perceptions of private benefits from increased public spending. Possible explanations are discussed.

Date: 1998-08-16
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