Mariana Blanco (Universidad del Rosario)

Seminar series “CLOSER, but not quite” – Understanding Taxpayer Behavior: An Experimental Study of Timing and Gradual Tax Reform

Venue: Campus Luigi Einaudi, room 3 D1 01

Abstract. Many countries worldwide face the challenge of increasing taxes or reducing subsidies to achieve fiscal consolidation, enhance services, and reduce inequality. At its core, fiscal reform encompasses two components: design and implementation. In a tax evasion model that incorporates an intrinsic motivation to pay, changes in the tax rate can influence compliance levels. Consequently, individuals might demonstrate their dislike to tax reform by reducing their voluntary payments. In this study, we examine the extent to which the pace and depth of reform impact its success, using a standard tax evasion game in a laboratory setting. We investigate a tax reform scenario involving a flat tax on income, where the rate increases from 10% to 40%. This reform is introduced by varying both the pace of the rate increase and the information individuals receive at the start of the experimental session. Our results reveal that the pace of reform does not affect compliance. However, providing participants with prior information about the reform does help mitigate the decrease in compliance due to the tax rate hike.

Joint with Andres Barinas, Andrea Lopez Luzuriaga, Carlos Scartacini.