From Flat to Fair? The Effects of a Progressive Tax Reform

Nicolas Ajzenman, Guillermo Cruces, Ricardo Perez-Truglia, Dario Tortarolo and Gonzalo Vazquez-Bare

No 33286, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper investigates the relationship between tax progressivity and compliance. We leverage a major progressive tax reform in a large Argentine municipality. First, we use a quasi-experimental design to estimate the causal effect of changes in a household’s own tax rates on its tax compliance. Second, we utilize a large-scale natural field experiment to examine whether, holding a household’s own tax rates constant, tax compliance is influenced by the tax rates of poor or rich households. We find that reducing taxes for poor households increases their compliance, while increasing taxes for rich households decreases theirs. When poor households learn about the tax hike on the rich, this increases their stated perceived fairness of the tax system and their actual tax compliance. When rich households learn about the tax cuts for the poor, their stated perceived fairness also increases significantly, but their compliance, if anything, goes down. Leveraging a further reform and an additional field experiment that took place a year later, we show that both the quasi-experimental and experimental findings replicate. Our evidence highlights that tax compliance depends not only on a household’s own tax rate but also on how they truly feel about the broader tax schedule. Our findings also highlight the gap between stated and revealed preferences for redistribution. Lastly, we conduct a counterfactual analysis to illustrate the implications of our findings for the design of tax policies.

JEL-codes: C93 D31 H24 H26 H71 (search for similar items in EconPapers)
Date: 2024-12
New Economics Papers: this item is included in nep-exp, nep-iue, nep-pbe and nep-pub
Note: DEV LE PE POL
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w33286.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:33286

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w33286
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().