Psychological Non-Equivalence of Tax Bases : An Empirical Investigation

Analyses of tax policy and tax reform often draw on a series of equivalencies of tax bases. For example, with capital markets that allow full borrowing and lending, a flat tax on wages can be shown to be equivalent to a flat tax on consumption. Recent work on the saliency and psychology of taxation suggests that how taxes are framed may affect both actual economic behavior and perceptions of fairness of different forms of taxation. This paper explores these behavioral and psychological issues through a series of online experiments. Our results indicate that economically equivalent tax bases do not have psychologically identical impacts; we discuss the psychological explanations for these findings drawing on salience and control