Don’t Tax Me? Determinants of Individual Attitudes Toward Progressive Taxation

Abstract

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW.Download this ZEW Discussion Paper from our ftp server:ftp://ftp.zew.de/pub/zew-docs/dp/dp10017.pdf Non-Technical SummaryHighly progressive tax systems entail disincentives for private economic activity and, thus, may hamper potential growth. Nevertheless, attempts to introduce alternative tax schedules regularly encounter significant political resistance. The aim of this paper is to widen the understanding of the determinants of individual attitudes toward progressive taxation and, therefore, the assessment of the political feasibility of tax reform proposals.Conventional political-economic theories usually explain redistributive preferences based on a narrow self-interest calculus. These theories however do not offer a rational for the fact that in many industrial countries the majority of voters seem to prefer progressive tax rates. In order to provide a comprehensive analysis of the determinants of individual attitudes toward progressive taxation, our analysis is not confined to pure self-interest but also introduces fairness aspects (e.g., fairness preferences, economic beliefs and fairness assessment of the status quo).Our empirical analysis is based on the representative data from the German General Social Survey (ALLBUS) for the year 2000. Next to information on the respondents' tax rate preferences, this survey offers valuable data on a wide range of individual fairness considerations as well as objective data on the respondents' socioeconomic characteristics.The empirical findings indicate that the individual attitudes toward progressive taxation are not only driven by the corresponding self-interest. Furthermore, fairness considerations play a major role in the formation of tax rate preferences: Persons without strong preferences for a distribution of (financial) means according to the need-principle, who do stress the relevance of individual effort for economic success and judge the present income distribution to be fair are less likely to demand higher tax rates for high income earners than for low income individuals. The finding that individuals do not necessarily choose the tax system that is most beneficial to them but also care about its fairness has important policy implications:A successful selling of (growth-enhancing) tax reforms should address this fairness related concerns as well. Abstract: This contribution empirically analyses the individual determinants of tax rate preferences. For that purpose we make use of the representative German G...

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