All’s fair in taxation Colin R. Kuehnhanss & Bruno Heyndels All’s fair in taxation: Introduction A framing experiment with local politicians Redistribution Taxation Schelling experiment Framing Hypotheses Colin R. Kuehnhanss & Bruno Heyndels Survey experiment Respondents Results Fixed-effects OLS Interactions Between-subject Discussion Department of Applied Economics Conclusion 21 September 2017 SSE in Riga / BICEPS Seminar
All’s fair in taxation Fairness Colin R. Kuehnhanss & Bruno Heyndels Introduction Redistribution Taxation Schelling experiment Framing Hypotheses Survey • Notion of fairness is important for citizens and politicians experiment Respondents • Redistributive policies usually evoke much discussion Results Fixed-effects • Opinions driven by ethical and fairness considerations OLS Interactions • Schelling (1981): subject to misunderstanding and bias Between-subject Discussion Conclusion
All’s fair in taxation Redistributive spending Colin R. Kuehnhanss & Bruno Heyndels Introduction • Contested when meant to alleviate disadvantages of certain (e.g. Redistribution income) groups Taxation Schelling experiment • Ethical and equity-driven policy-making Framing Hypotheses • Schelling’s (1981) examples: rent control, food stamps, gas Survey coupons for the poor experiment Respondents • Appealing options in light of rising prices, but: Results • Inefficient (i.e. valued below cost) Fixed-effects OLS • Disincentives Interactions Between-subject • Market distortions Discussion • ‘Fair’ but unsuitable instruments to deal with underlying Conclusion problem: poverty • Schelling’s (1981) solution: use of multiple instruments for different issues • Give cash to alleviate poverty • Deal with food/rent/energy/other issues independently
All’s fair in taxation Financing of redistribution Colin R. Kuehnhanss & Bruno Heyndels Introduction Redistribution Taxation Schelling experiment Framing Hypotheses Survey experiment • Taxes Respondents • Fairness and equity-driven debate? Results Fixed-effects • Use of single instruments may have unintended consequences OLS Interactions Between-subject Discussion Conclusion
All’s fair in taxation Taxes and premiums Colin R. Kuehnhanss & Bruno Heyndels Introduction Redistribution Taxation Schelling experiment Framing Hypotheses • Taxes and subsidies create premiums for (socially) desirable Survey states experiment Respondents • Serve as incentives for one state over another Results • Two-step process: Fixed-effects OLS 1 Define a baseline Interactions Between-subject 2 Define the differential between recipients with varying Discussion characteristics (e.g. income levels) Conclusion
All’s fair in taxation Schelling experiment Colin R. Kuehnhanss & Bruno Heyndels Introduction Redistribution Taxation Schelling experiment Framing Schelling’s (1981) in-class thought experiment at the Kennedy School Hypotheses at Harvard: Survey experiment • When parents receive benefits for having children ... Respondents Results • . . . poor parents should receive more child benefit than rich Fixed-effects parents? OLS Interactions • . . . poor parents should receive the same as rich parents? Between-subject • . . . rich parents should receive more child benefit than poor Discussion parents! Conclusion
All’s fair in taxation Schelling experiment Colin R. Kuehnhanss & Bruno Heyndels Introduction Redistribution Taxation Schelling experiment Framing Hypotheses What if the standard is a couple with 2 children and those without Survey experiment children pay extra taxes? Respondents • . . . rich parents pay less taxes than poor parents? Results Fixed-effects • . . . rich parents pay the same as poor parents? OLS Interactions Between-subject • . . . rich parents pay more taxes than poor parents! Discussion Conclusion
All’s fair in taxation Framing in taxation Colin R. Kuehnhanss & Bruno Heyndels Introduction Redistribution Taxation Schelling experiment • In a world of rational decision-makers framing should not have Framing any effect on preferences and choices (invariance axiom) Hypotheses Survey • Spoiler: They do. experiment Respondents Results • Broad literature on heuristics and biases (see e.g. Kahneman & Fixed-effects OLS Tversky, 2000) Interactions Between-subject • Framing and reference point dependency are well established Discussion • Work on framing in taxation questions remains relatively sparse Conclusion • . . . with notable exception of tax compliance
All’s fair in taxation What’s (in) a frame? Colin R. Kuehnhanss & Bruno Heyndels Introduction Redistribution Taxation Schelling experiment Framing • Important distinction between equivalency and issue framing Hypotheses (see e.g. Druckman 2001) Survey experiment Respondents • Basic concepts: Results Fixed-effects • Internal vs. external framing (Tverky & Kahneman 1981) OLS • Strict vs loose framing (Frisch 1993) Interactions Between-subject • Strict: ‘pairs of problems that involve a redescription of the Discussion exact same situation’ Conclusion • Loose: only implies equivalence of outcomes in economic terms
All’s fair in taxation What’s (in) a frame? Colin R. Kuehnhanss & Bruno Heyndels Introduction Redistribution Taxation Schelling experiment Framing Hypotheses Survey • Different types of framing (Levin et al. 1998): experiment Respondents 1 Risky-choice framing (usually associated with Prospect Theory Results (Kahneman & Tversky 1979)) Fixed-effects 2 Attribute framing OLS Interactions 3 Goal framing Between-subject Discussion Conclusion
All’s fair in taxation Framing in taxation Colin R. Kuehnhanss & Bruno Heyndels Introduction Redistribution Taxation Schelling experiment Framing • Risky-choice framing in tax compliance Hypotheses • Taxes either presented as losses (e.g. compared to gross income) Survey experiment or as gains (e.g. in case of a rebate) Respondents • Presentation influences compliance, but not universally - Results Fixed-effects demographics play a role (Cullis et al. 2006, 2012) OLS Interactions • Goal framing Between-subject • Alert people to positive/negative consequences of Discussion compliance/avoidance (Hasseldine & Hite 2003) Conclusion
All’s fair in taxation Related to current study Colin R. Kuehnhanss & Bruno Heyndels Introduction Redistribution Taxation Schelling experiment Framing Hypotheses Survey experiment • Traub (1999) with a sample of German employees Respondents Results • McCaffery and Baron (2004) and LeBoeuf and Shafir (2003), Fixed-effects with mechanical Turk and students, respectively OLS Interactions Between-subject Discussion Conclusion
All’s fair in taxation Hypotheses Colin R. Kuehnhanss & Bruno Heyndels Introduction • Recall the levels of child benefits/taxes considered fair earlier Redistribution Taxation • Two dimensions involved: family size and income Schelling experiment Framing • When asked how much benefit to grant, the family size Hypotheses dimension is more influential Survey experiment H1a: When a premium is determined by assigning benefits across Respondents income categories, the amount considered fair is decreasing with Results Fixed-effects income OLS Interactions Between-subject • When asked how much to tax, the income dimension outweighs: Discussion H1b: When a premium is determined by assigning tax burdens across Conclusion income categories, the amount considered fair is increasing with income • The Schelling-effect as described in his in-class thought-experiment requires both H1a and H1b to be true
All’s fair in taxation Hypotheses Colin R. Kuehnhanss & Bruno Heyndels Introduction Redistribution Taxation Schelling experiment Framing • Further research questions: Hypotheses Survey Does the Schelling effect occur outside the traditionally tested child experiment benefit scenario? Respondents Results Fixed-effects Are policy-makers with authority over tax system relevant OLS Interactions considerations are susceptible to tax framing effects Between-subject Discussion • Additional explorative analysis of demographic and political Conclusion influences on potential framing effects
All’s fair in taxation Survey experiment Colin R. Kuehnhanss & Bruno Heyndels Introduction Redistribution Taxation Schelling experiment Framing • Survey experiment among local Flemish politicians Hypotheses • Invitations sent to 5,928 publicly available email-addresses in Survey experiment spring 2016 (7,457 politicians elected in 2012) Respondents Results • Multiple sections with questions on social and economic Fixed-effects preferences OLS Interactions Between-subject • Participation voluntary and not incentivised Discussion Mix of within and between-subject design with random assignment to Conclusion two versions of our ‘Schelling questions’
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