IDEAS home Printed from https://ideas.repec.org/p/hhs/iuiwop/0837.html
   My bibliography  Save this paper

Fiscal Illusion and Fiscal Obfuscation:An Empirical Study of Tax Perception in Sweden

Author

Listed:
  • Sanandaji, Tino

    (Research Institute of Industrial Economics (IFN))

  • Wallace, Björn

    (Stockholm School of Economics)

Abstract

In this paper we present survey evidence suggesting that there exists a sizeable fiscal illusion amongst the general public in Sweden. Respondents in a nation-wide and representative survey systematically underestimate the share of an ordinary worker’s income that is transferred to the public sector. Furthermore, we make a theoretical distinction between tax illusion and fiscal obfuscation, a proposed novel type of fiscal illusion. It has previously been assumed that fiscal illusion derives from a fragmentized tax system with many small, and largely invisible, taxes which tend to be ignored or underestimated by the tax payers. We hypothesize that this systematic bias could in addition emanate from misapprehensions of the real incidence of a tax. Evidence is presented that this could apply even when taxes are few and large, contrary to the tax complexity hypothesis. When this misperception derives from seemingly deliberate tax design and tax labeling, as appears to be the case with the payroll taxes in Sweden, we call it fiscal obfuscation.

Suggested Citation

  • Sanandaji, Tino & Wallace, Björn, 2010. "Fiscal Illusion and Fiscal Obfuscation:An Empirical Study of Tax Perception in Sweden," Working Paper Series 837, Research Institute of Industrial Economics.
    • Handle: RePEc:hhs:iuiwop:0837
    as

    Download full text from publisher

    File URL: https://www.ifn.se/wfiles/wp/wp837.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Magee,Stephen P. & Brock,William A. & Young,Leslie, 1989. "Black Hole Tariffs and Endogenous Policy Theory," Cambridge Books, Cambridge University Press, number 9780521377003.
    2. Richard Wagner, 1976. "Revenue structure, fiscal illusion, and budgetary choice," Public Choice, Springer, vol. 25(1), pages 45-61, March.
    3. Lewis, Alan, 1979. "An Empirical Assessment of Tax Mentality," Public Finance = Finances publiques, , vol. 34(2), pages 245-257.
    4. 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.
    5. Rupert Sausgruber & Jean-Robert Tyran, 2005. "Testing the Mill hypothesis of fiscal illusion," Public Choice, Springer, vol. 122(1), pages 39-68, January.
    6. Dornstein, Miriam, 1987. "Taxes: Attitudes and perceptions and their social bases," Journal of Economic Psychology, Elsevier, vol. 8(1), pages 55-76, March.
    7. Werner W. Pommerehne & Friedrich Schneider*, 1978. "Fiscal Illusion, Political Institutions, And Local Public Spending," Kyklos, Wiley Blackwell, vol. 31(3), pages 381-408, August.
    8. Schokkaert, Erik, 1988. "Fiscal preferences and fiscal knowledge at the local level," Journal of Economic Psychology, Elsevier, vol. 9(1), pages 29-46, March.
    9. Rebecca J. Campbell, 2004. "Leviathan and Fiscal Illusion in Local Government Overlapping Jurisdictions," Public Choice, Springer, vol. 120(3_4), pages 301-329, September.
    10. Melo, Ligia, 2002. "The Flypaper Effect under Different Institutional Contexts: The Colombian Case," Public Choice, Springer, vol. 111(3-4), pages 317-345, June.
    11. Magnus Henrekson & Johan Lybeck, 1988. "Explaining the growth of government in Sweden: A disequilibrium approach," Public Choice, Springer, vol. 57(3), pages 213-232, June.
    12. Congleton, Roger D, 2001. "Rational Ignorance, Rational Voter Expectations, and Public Policy: A Discrete Informational Foundation for Fiscal Illusion," Public Choice, Springer, vol. 107(1-2), pages 35-64, April.
    13. 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.
    14. Chu, Hong-Yih, 2003. "The Dual-Illusion of Grants-in-Aid on Central and Local Expenditures," Public Choice, Springer, vol. 114(3-4), pages 349-359, March.
    15. Caplan, Bryan, 2001. "Rational Irrationality and the Microfoundations of Political Failure," Public Choice, Springer, vol. 107(3-4), pages 311-331, June.
    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. Paulo Reis Mourao, 2008. "Towards a Puviani’s Fiscal Illusion Index," Hacienda Pública Española / Review of Public Economics, IEF, vol. 187(4), pages 49-86, December.
    2. Mourão, Paulo, 2007. "Towards a Fiscal Illusion Index," MPRA Paper 9760, University Library of Munich, Germany, revised 28 Jul 2008.

    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. Roberto Dell'Anno & Vincenzo Maria De Rosa, 2013. "The Relevance of the Theory of Fiscal Illusion. The Case of the Italian Tax System," HISTORY OF ECONOMIC THOUGHT AND POLICY, FrancoAngeli Editore, vol. 2013(2), pages 63-92.
    2. Brunner, Eric J. & Ross, Stephen L. & Simonsen, Becky K., 2015. "Homeowners, renters and the political economy of property taxation," Regional Science and Urban Economics, Elsevier, vol. 53(C), pages 38-49.
    3. Haug, Peter, 2009. "Shadow Budgets, Fiscal Illusion and Municipal Spending: The Case of Germany," IWH Discussion Papers 9/2009, Halle Institute for Economic Research (IWH).
    4. Andreas Buehn & Roberto Dell’Anno & Friedrich Schneider, 2018. "Exploring the dark side of tax policy: an analysis of the interactions between fiscal illusion and the shadow economy," Empirical Economics, Springer, vol. 54(4), pages 1609-1630, June.
    5. Roberto Dell’Anno & Paulo Mourao, 2012. "Fiscal Illusion around the World," Public Finance Review, , vol. 40(2), pages 270-299, March.
    6. Roberto Dell'Anno & Morena De Stefano, 2014. "Un indicatore sintetico dell?Illusione Finanziaria. Un tentativo di stima per l?Italia," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2014(1), pages 65-92.
    7. Roberto Dell’Anno & Brian Dollery, 2014. "Comparative fiscal illusion: a fiscal illusion index for the European Union," Empirical Economics, Springer, vol. 46(3), pages 937-960, May.
    8. Manuel Ja n-Garc a, 2017. "A Demand Determinants Model for Public Spending in Spain," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 372-386.
    9. Facchini, Francois, 2014. "The determinants of public spending: a survey in a methodological perspective," MPRA Paper 53006, University Library of Munich, Germany.
    10. Andrew Abbott & Philip Jones, 2016. "Fiscal Illusion and Cyclical Government Expenditure: State Government Expenditure in the United States," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(2), pages 177-193, May.
    11. F. Forte, 1997. "The measurement of 'fiscal burden' on GDP instead than on national net value added produced: a chapter in fiscal illusion," BNL Quarterly Review, Banca Nazionale del Lavoro, vol. 50(202), pages 337-375.
    12. Majid Maddah & Fozieh Jeyhoon-Tabar, 2016. "Studying the Flypaper Effect in the Provinces of Iran (2000-2013)," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 20(3), pages 339-354, Summer.
    13. Carpenter, Jeffrey & Matthews, Peter Hans & Tabb, Benjamin, 2016. "Progressive taxation in a tournament economy," Journal of Public Economics, Elsevier, vol. 143(C), pages 64-72.
    14. Blumkin, Tomer & Ruffle, Bradley J. & Ganun, Yosef, 2012. "Are income and consumption taxes ever really equivalent? Evidence from a real-effort experiment with real goods," European Economic Review, Elsevier, vol. 56(6), pages 1200-1219.
    15. Benoît Le Maux, 2009. "Governmental behavior in representative democracy: a synthesis of the theoretical literature," Public Choice, Springer, vol. 141(3), pages 447-465, December.
    16. Hirofumi Kurokawa & Tomoharu Mori & Fumio Ohtake, 2016. "A Choice Experiment on Taxes: Are Income and Consumption Taxes Equivalent?," ISER Discussion Paper 0966, Institute of Social and Economic Research, Osaka University.
    17. James Alt, 1983. "The evolution of tax structures," Public Choice, Springer, vol. 41(1), pages 181-222, January.
    18. Andrea Morone & Francesco Nemore & Simone Nuzzo, 2018. "Experimental evidence on tax salience and tax incidence," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(4), pages 582-612, August.
    19. Ackermann, Hagen, 2015. "How does the type of subsidization affect investments: Experimental evidence," arqus Discussion Papers in Quantitative Tax Research 185, arqus - Arbeitskreis Quantitative Steuerlehre.
    20. Hagen Ackermann & Martin Fochmann & Nadja Wolf, 2016. "The Effect of Straight-Line and Accelerated Depreciation Rules on Risky Investment Decisions—An Experimental Study," IJFS, MDPI, vol. 4(4), pages 1-26, October.

    More about this item

    Keywords

    Fiscal Illusion; Fiscal Obfuscation; Tax Illusion; Tax Labeling; Tax Structure; Personal Income Taxation;
    All these keywords.

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:hhs:iuiwop:0837. 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: Elisabeth Gustafsson (email available below). General contact details of provider: https://edirc.repec.org/data/iuiiise.html .

    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.