Testing the Mill hypothesis of fiscal illusion
- Author(s)
- Rupert Sausgruber, Jean-Robert Tyran
- Abstract
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.
- Organisation(s)
- Department of Economics, Vienna Center for Experimental Economics
- External organisation(s)
- Leopold-Franzens-Universität Innsbruck
- Journal
- Public Choice
- Volume
- 122
- Pages
- 39-68
- No. of pages
- 30
- ISSN
- 0048-5829
- DOI
- https://doi.org/10.1007/s11127-005-3992-4
- Publication date
- 2005
- Peer reviewed
- Yes
- Austrian Fields of Science 2012
- 502038 Taxation, 502024 Public economy, 502045 Behavioural economics
- Portal url
- https://ucrisportal.univie.ac.at/en/publications/testing-the-mill-hypothesis-of-fiscal-illusion(ee1ea69d-81df-4c80-b905-95f0cb273483).html