Tax perceptions and the demand for public expenditure: Evidence from UK micro-data
European Journal of Political Economy, vol.19, no.4, pp.793-816, 2003 (SCI-Expanded, Scopus)
- Publication Type: Article / Article
- Volume: 19 Issue: 4
- Publication Date: 2003
- Doi Number: 10.1016/s0176-2680(03)00037-5
- Journal Name: European Journal of Political Economy
- Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Scopus
- Page Numbers: pp.793-816
- Keywords: Fiscal illusion, Income tax, Public spending, Tax perceptions, VAT
- Ankara University Affiliated: Yes
Abstract
Using responses from the 1995 British Social Attitudes Survey (BSAS), this paper assesses if there is evidence of voter misperception of tax costs. We find convincing evidence of income tax (IT) and value added tax (VAT) misperceptions, with a systematic bias towards overestimation of tax burdens for VAT, contrary to predictions of the fiscal illusion literature. We then integrate tax misperceptions into a model of demand for public expenditure. Voters' spending preferences are strongly related to their incomes, actual tax costs, and other fiscal-related household characteristics. A tendency to overestimate tax burdens appears to have only a modest influence on demands for public spending. © 2003 Elsevier B.V. All rights reserved.