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Are consumption taxes really disliked more than equivalent costs? Inconclusive results in the USA and no effect in the UK

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  • Olsen, Jerome
  • Kogler, Christoph
  • Brandt, Mark J.
  • Dezső, Linda
  • Kirchler, Erich

Abstract

In two experiments on hypothetical purchase decisions, Sussman and Olivola (2011) found that US citizens prefer avoiding tax-related costs over avoiding tax-unrelated monetary costs of the same size. The original Experiment 1 and 2 tests of this Tax Aversion indicated that people are willing to wait longer to receive a discount when it refers to taxes (e.g., “axe-the-tax discount”) than when it is just a regular discount (e.g., “customer rewards”). We conducted high-powered close replications of both original studies, Experiment 1 (N = 590) and Experiment 2 (N = 650), which reveal either no effect (Experiment 1: r = 0.02, 95% CI [−0.06, 0.10]) or a small effect (Experimental 2: r = 0.09, 95% CI [0.01, 0.16]) in the USA. We also replicated both experimental procedures in the UK to test whether the effect generalized to a value added tax system. Neither Experiment 1 (N = 595; r = 0.01, 95% CI [−0.07, 0.09]) nor Experiment 2 (N = 673; r = 0.03, 95% CI [−0.04, 0.11]) revealed an effect in the UK. Tax Aversion in hypothetical consumption decisions seems to be a smaller phenomenon than originally proposed and does not generalize to a value added tax system.

Suggested Citation

  • Olsen, Jerome & Kogler, Christoph & Brandt, Mark J. & Dezső, Linda & Kirchler, Erich, 2019. "Are consumption taxes really disliked more than equivalent costs? Inconclusive results in the USA and no effect in the UK," Journal of Economic Psychology, Elsevier, vol. 75(PA).
    • Handle: RePEc:eee:joepsy:v:75:y:2019:i:pa:s0167487018303088
    DOI: 10.1016/j.joep.2019.02.001
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    References listed on IDEAS

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    1. Smith, Peter, 1991. "Lessons From the British Poll Tax Disaster," National Tax Journal, National Tax Association;National Tax Journal, vol. 44(4), pages 421-436, December.
    2. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    3. Smith, Peter, 1991. "Lessons from the British Poll Tax Disaster," National Tax Journal, National Tax Association, vol. 44(4), pages 421-36, December.
    4. Wahlund, Richard, 1992. "Tax changes and economic behavior: The case of tax evasion," Journal of Economic Psychology, Elsevier, vol. 13(4), pages 657-677, December.
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    Cited by:

    1. Anna Esslinger & Katharina Pfeil & Lars P. Feld, 2024. "Asymmetric Labor Supply Responses to Taxation," CESifo Working Paper Series 11317, CESifo.
    2. Eric J. Brunner & Mark D. Robbins & Bill Simonsen, 2021. "Experimental evidence about property tax word aversion," Public Budgeting & Finance, Wiley Blackwell, vol. 41(4), pages 50-70, December.
    3. James Alm & Matthias Kasper, 2020. "Laboratory Experiments," Working Papers 2008, Tulane University, Department of Economics.

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