Testing the Mill Hypothesis of Fiscal Illusion
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Testing the Mill Hypothesis of Fiscal Illusion. / Sausgruber, Rupert; Tyran, Jean-Robert.
2005.Research output: Working paper › Research
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TY - UNPB
T1 - Testing the Mill Hypothesis of Fiscal Illusion
AU - Sausgruber, Rupert
AU - Tyran, Jean-Robert
PY - 2005/4/19
Y1 - 2005/4/19
N2 - According to the Mill hypothesis, the tax burden from indirect taxation is underestimated because indirect taxes are less visible than direct taxes. We experimentally test the Mill hypothesis and identify tax framing as a cause of fiscal illusion. We find that the tax burden associated with an indirect tax is underestimated, whereas this is not the case with an equivalent direct tax. In a referendum to tax and redistribute tax revenue, fiscal illusion is found to distort democratic decisions and to result in excessive redistribution. Yet, voters eventually learn to overcome fiscal illusion.
AB - According to the Mill hypothesis, the tax burden from indirect taxation is underestimated because indirect taxes are less visible than direct taxes. We experimentally test the Mill hypothesis and identify tax framing as a cause of fiscal illusion. We find that the tax burden associated with an indirect tax is underestimated, whereas this is not the case with an equivalent direct tax. In a referendum to tax and redistribute tax revenue, fiscal illusion is found to distort democratic decisions and to result in excessive redistribution. Yet, voters eventually learn to overcome fiscal illusion.
KW - Fiscal illusion
KW - voting behavior
KW - indirect taxation
KW - redistribution
KW - learning
U2 - 10.2139/ssrn.699962
DO - 10.2139/ssrn.699962
M3 - Working paper
T3 - University of Copenhagen Economics Working Paper
BT - Testing the Mill Hypothesis of Fiscal Illusion
ER -
ID: 241647209