IDEAS home Printed from https://ideas.repec.org/a/eee/soceco/v41y2012i4p468-475.html
   My bibliography  Save this article

The contribution of behavioral economics to tax reform in the United Kingdom

Author

Listed:
  • James, Simon

Abstract

This paper examines the contribution of behavioral economics to tax reform by examining two major reforms in the United Kingdom which may be seen as natural experiments – the reform of local taxation and the introduction of value added tax. The case for both was based strongly on mainstream economic analysis but one was a failure and the other a success. The introduction of the local community charge, or ‘poll tax’ as it became known, was such a failure that not only did it have to be repealed but it was also a factor in the downfall of Mrs. Margaret Thatcher as Prime Minister. The introduction of value added tax took more account of behavioral factors and was successful. The paper concludes that a wider approach based on behavioral as well as mainstream economics may have considerable advantages in developing tax policy.

Suggested Citation

  • James, Simon, 2012. "The contribution of behavioral economics to tax reform in the United Kingdom," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 41(4), pages 468-475.
    • Handle: RePEc:eee:soceco:v:41:y:2012:i:4:p:468-475
    DOI: 10.1016/j.socec.2011.07.004
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1053535711000874
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.socec.2011.07.004?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Robin Boadway, 1997. "Public Economics and the Theory of Public Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 753-772, November.
    2. Congdon, William J. & Kling, Jeffrey R. & Mullainathan, Sendhil, 2009. "Behavioral Economics and Tax Policy," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(3), pages 375-386, September.
    3. Cullis, J. G. & Jones, P. R. & Morrissey, O., 1993. "The charge of the tax brigade : A case study of government failure and tax reforms," European Journal of Political Economy, Elsevier, vol. 9(3), pages 407-425, August.
    4. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1986. "Fairness and the Assumptions of Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages 285-300, October.
    5. Stefano DellaVigna, 2009. "Psychology and Economics: Evidence from the Field," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 315-372, June.
    6. R. G. Lipsey & Kelvin Lancaster, 1956. "The General Theory of Second Best," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 24(1), pages 11-32.
    7. 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.
    8. Alan Richmond Prest, 1980. "Value Added Taxation," Books, American Enterprise Institute, number 591970, September.
    9. Chris Heady, 1993. "Optimal taxation as a guide to tax policy: a survey," Fiscal Studies, Institute for Fiscal Studies, vol. 14(1), pages 15-41, February.
    10. James, Simon & Alley, Clinton, 2008. "Successful tax reform: the experience of value added tax in the United Kingdom and goods and services tax in New Zealand," MPRA Paper 19858, University Library of Munich, Germany.
    11. Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753, November.
    12. Tomer, John F., 2007. "What is behavioral economics?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(3), pages 463-479, June.
    13. Simon James, 1999. "The future international tax environment and European tax harmonization: a personal view," European Accounting Review, Taylor & Francis Journals, vol. 8(4), pages 731-747.
    14. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
    15. Gemmell, Norman & Morrissey, Oliver & Pinar, Abuzer, 2002. "Fiscal Illusion and Political Accountability: Theory and Evidence from Two Local Tax Regimes in Britain," Public Choice, Springer, vol. 110(3-4), pages 199-224, March.
    16. Smith, Peter, 1991. "Lessons from the British Poll Tax Disaster," National Tax Journal, National Tax Association, vol. 44(4), pages 421-36, December.
    17. Frey, Bruno S., 1976. "Taxation in fiscal exchange : A comment," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 31-35.
    18. Gradstein, Mark, 1999. "Optimal taxation and fiscal constitution," Journal of Public Economics, Elsevier, vol. 72(3), pages 471-485, June.
    19. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    20. Evan Davis & John Kay, 1985. "Extending the VAT base: problems and possibilities," Fiscal Studies, Institute for Fiscal Studies, vol. 6(1), pages 1-16, February.
    21. Cullis, J G & Jones, P R & Morrissey, O, 1991. "Public Choice Perspectives on the Poll Tax," Economic Journal, Royal Economic Society, vol. 101(406), pages 600-614, May.
    22. Sandmo, Agnar, 2005. "The Theory of Tax Evasion: A Retrospective View," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(4), pages 643-663, December.
    23. Diamond, Peter A & Mirrlees, James A, 1971. "Optimal Taxation and Public Production II: Tax Rules," American Economic Review, American Economic Association, vol. 61(3), pages 261-278, June.
    24. Fels, Rendigs, 1981. "Boland Ignores Simon: A Comment," Journal of Economic Literature, American Economic Association, vol. 19(1), pages 83-84, March.
    25. James, Simon & Edwards, Alison, 2008. "Developing Tax Policy in a Complex and Changing World," Economic Analysis and Policy, Elsevier, vol. 38(1), pages 35-53, March.
    26. James, Simon, 2004. "Financing multi-level government," MPRA Paper 26760, University Library of Munich, Germany.
    27. Morris Altman, 2004. "The Nobel Prize in behavioral and experimental economics: a contextual and critical appraisal of the contributions of Daniel Kahneman and Cernon Smith," Review of Political Economy, Taylor & Francis Journals, vol. 16(1), pages 3-41.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Miklós Antal & Ardjan Gazheli & Jeroen C.J.M. van den Bergh, 2012. "Behavioural Foundations of Sustainability Transitions. WWWforEurope Working Paper No. 3," WIFO Studies, WIFO, number 46424, January.
    2. Hilal MOLA & Serpil SUMER ADİN, 2024. "Examination of Tax Culture, Tax Awareness, and Tax Compliance Through Video-Based Interviews," Bingol University Journal of Economics and Administrative Sciences, Bingol University, Faculty of Economics and Administrative Sciences, vol. 8(2), pages 131-145, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. James, Simon, 2010. "Combining the contributions of behavioral economics and other social sciences in understanding taxation and tax reform," MPRA Paper 26289, University Library of Munich, Germany.
    2. James Alm & Carolyn J. Bourdeaux, 2013. "Applying Behavioral Economics to the Public Sector," Hacienda Pública Española / Review of Public Economics, IEF, vol. 206(3), pages 91-134, September.
    3. Bruno S. Frey & David A. Savage & Benno Torgler, 2011. "Behavior under Extreme Conditions: The Titanic Disaster," Journal of Economic Perspectives, American Economic Association, vol. 25(1), pages 209-222, Winter.
    4. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 1-19.
    5. Mehmet Karacuka & Asad Zaman, 2012. "The empirical evidence against neoclassical utility theory: a review of the literature," International Journal of Pluralism and Economics Education, Inderscience Enterprises Ltd, vol. 3(4), pages 366-414.
    6. Rübbelke, Dirk T.G., 2011. "International support of climate change policies in developing countries: Strategic, moral and fairness aspects," Ecological Economics, Elsevier, vol. 70(8), pages 1470-1480, June.
    7. Andrea Albarea & Michele Bernasconi & Anna Marenzi & Dino Rizzi, 2023. "Tax Evasion, Behavioral Microsimulation Models and Flat-Rate Tax Reforms: Analysis for Italy," Public Finance Review, , vol. 51(2), pages 262-310, March.
    8. Gaetano Lisi, 2023. "Tax Audits, Tax Rewards and Labour Market Outcomes," Economies, MDPI, vol. 11(2), pages 1-12, February.
    9. James, Simon, 2007. "Tax Simplification is not a simple issue: the reasons for difficulty and a possible strategy," MPRA Paper 19281, University Library of Munich, Germany.
    10. Benno Torgler, 2021. "The Power of Public Choice in Law and Economics," CREMA Working Paper Series 2021-04, Center for Research in Economics, Management and the Arts (CREMA).
    11. Committee, Nobel Prize, 2017. "Richard H. Thaler: Integrating Economics with Psychology," Nobel Prize in Economics documents 2017-1, Nobel Prize Committee.
    12. Bouwe R. Dijkstra, 2011. "Good and Bad Equilibria with the Informal Sector," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(4), pages 668-685, December.
    13. James, Simon & Alley, Clinton, 2008. "Successful tax reform: the experience of value added tax in the United Kingdom and goods and services tax in New Zealand," MPRA Paper 19858, University Library of Munich, Germany.
    14. Catalina Tejada & Eliana Ferrara & Henrik Kleven & Florian Blum & Oriana Bandiera & Michel Azulai, 2015. "State Effectiveness, Growth, and Development," Working Papers id:6668, eSocialSciences.
    15. Arun Advani & William Elming & Jonathan Shaw, 2023. "The Dynamic Effects of Tax Audits," The Review of Economics and Statistics, MIT Press, vol. 105(3), pages 545-561, May.
    16. David Rea & Craig Froehle & Suzanne Masterson & Brian Stettler & Gregory Fermann & Arthur Pancioli, 2021. "Unequal but Fair: Incorporating Distributive Justice in Operational Allocation Models," Production and Operations Management, Production and Operations Management Society, vol. 30(7), pages 2304-2320, July.
    17. Antonides, Gerrit & Kroft, Maaike, 2005. "Fairness judgments in household decision making," Journal of Economic Psychology, Elsevier, vol. 26(6), pages 902-913, December.
    18. Schnellenbach, Jan & Schubert, Christian, 2015. "Behavioral political economy: A survey," European Journal of Political Economy, Elsevier, vol. 40(PB), pages 395-417.
    19. Vicky Barham & Rose Anne Devlin & Olga Milliken, 2016. "Genetic Health Risks: The Case for Universal Public Health Insurance," Working Papers 1605E, University of Ottawa, Department of Economics.
    20. repec:spo:wpmain:info:hdl:2441/56k383m9o9kpb1g6f8rvv74ok is not listed on IDEAS
    21. Traxler, Christian, 2010. "Social norms and conditional cooperative taxpayers," European Journal of Political Economy, Elsevier, vol. 26(1), pages 89-103, March.

    More about this item

    Keywords

    Behavioral economics; Tax reform; Poll tax; Valued added tax;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:soceco:v:41:y:2012:i:4:p:468-475. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/620175 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.