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Inattention and the Taxation Bias

Author

Listed:
  • Jérémy Boccanfuso

    (UNIBO - Alma Mater Studiorum Università di Bologna = University of Bologna)

  • Antoine Ferey

    (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper shows that inattention to taxes generates a time-inconsistency problem in the choice of tax policy, leading to higher taxes in equilibrium. These discretionary tax increases are inefficient as they are deviations from the socially optimal commitment policy. We call these deviations a taxation bias. Combining sufficient statistics and structural approaches, we quantify the magnitude of this policy distortion for the U.S. redistributive tax-transfer system. We find that the taxation bias ranges between 3 and 8 percentage points, alters tax-transfer progressivity, and has significant welfare effects. Overall, our findings shed new light on the implications of inattention and misperceptions.

Suggested Citation

  • Jérémy Boccanfuso & Antoine Ferey, 2023. "Inattention and the Taxation Bias," SciencePo Working papers Main hal-04603450, HAL.
    • Handle: RePEc:hal:spmain:hal-04603450
    DOI: 10.1093/jeea/jvad056
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-04603450v1
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    References listed on IDEAS

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    1. Jeffrey L. Hoopes & Daniel H. Reck & Joel Slemrod, 2015. "Taxpayer Search for Information: Implications for Rational Attention," American Economic Journal: Economic Policy, American Economic Association, vol. 7(3), pages 177-208, August.
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    Cited by:

    1. Blesse, Sebastian & Buhlmann, Florian & Doerrenberg, Philipp, 2019. "Do people really want a simple tax system? Evidence on preferences towards income tax simplification," ZEW Discussion Papers 19-058, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    inattention; misperceptions; optimal taxation; policy distortions;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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