Paying for Civilization: The Origins of Public Tax Preferences in Seven Countries

Abstract

What is the individual’s preferred income tax rate? How much income tax progressivity do people want? How do individuals form these preferences? This dissertation answers these questions by leveraging the 1996 International Social Survey Program – Role of Government III survey and the anchoring and adjustment heuristic. When researchers ask individuals for their income tax preferences most respondents construct their preference on the spot using few cognitive resources. Individuals also want their income tax preference to be reasonable (i.e., the state can afford basic goods and services), so individuals anchor their preferences on existing state tax policy, their own income tax rate, and their previous responses when applicable. After individuals establish an anchoring point, they make adjustments based on ideological beliefs, level of trust, and self-interest; however, the effects of these adjustments are mediated by the institutional structure of the state. The results of the ordinary least regression models point to four conclusions. First, individuals behave as reasonable cognitive misers. They anchor their income tax preferences on the status quo, and their previous responses. This result explains cross-state differences in income tax preferences. Second, liberal individuals prefer progressive taxation in individualistic states (i.e., states with means-tested welfare states, majoritarian governments, and pluralist interest group systems), and flat taxes in cooperative regimes (i.e., states with expansive welfare states, consensus regimes, and corporatist interest group systems). Third, trusting individuals prefer flat taxes, and preferences for progressive taxation are a means to ensure tax evaders pay their fair share. Fourth, the effects of self-interest on tax preferences are limited, and only influence tax preferences on those earning one-times and eight-times the wages of a full-time unskilled worker.