QoG lunch seminar with Florian Hollenbach

Abstract:

Most theories of taxation and redistribution assume that states are capable and efficient in collecting taxes. Yet, we know that states vary tremendously in their ability to enforce tax policies and collect taxes from their citizens (Bird and Zolt, 2004; Fjeldstadt and Moore, 2008; Gordon and Li, 2005; Besley and Persson, 2014). In this paper, we ask how changes in taxpayers’ perceptions of the state’s fiscal capacity – and implied distributional consequences for enforcement – change preferences over taxation. Does lower tax capacity reduce overall demand for taxation? Moreover, are (poor) voters less likely to prefer high progressivity if they believe it is easy for the rich to evade taxes? To answer these questions, we undertake a survey experiment in which we encourage different perceptions of the state’s fiscal capacity. Subjects are given true information treatments about the state’s ability to enforce tax policies, priming low or asymmetric capacity. We show that citizens’ perceptions of capacity are malleable and directly affect beliefs about tax compliance and preferences over taxation. The experiment's results allow us to learn about how capacity influences distributional expectations of enforcement, and, in turn, voter preferences. Our results have important implications for scholars and policymakers alike.