Testing the Mill Hypothesis of Fiscal Illusion
Research output: Working paper › Research
According to the Mill hypothesis, the tax burden from indirect taxation is underestimated because indirect taxes are less visible than direct taxes. We experimentally test the Mill hypothesis and identify tax framing as a cause of fiscal illusion. We find that the tax burden associated with an indirect tax is underestimated, whereas this is not the case with an equivalent direct tax. In a referendum to tax and redistribute tax revenue, fiscal illusion is found to distort democratic decisions and to result in excessive redistribution. Yet, voters eventually learn to overcome fiscal illusion.
Original language | English |
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DOIs | |
Publication status | Published - 19 Apr 2005 |
Series | University of Copenhagen Economics Working Paper |
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Number | 04-18 |
- Fiscal illusion, voting behavior, indirect taxation, redistribution, learning
Research areas
ID: 241647209