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Fairness, Information and Coalition Building in Tax Policy: An Experimental Learning Approach
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AbstractMany states in America have fallen into deficit and are seeking ways to develop new fiscal resources. The current dilemma in Alaska and other states centers on what kind of tax--income taxes, sales taxes or head taxes--might be agreed upon and in what proportions. The issues related to forming voting coalitions to adopt tax policies the public will accept as fair are similar in all the states struggling with fiscal policy. Experimental methods can help us address this dilemma by teaching students about public goods, tax burden equity, and tradeoffs. This presentation discusses the importance of exploring tax policy preferences through experimental social science methods in classrooms. Second, it presents a set of hypotheses about the tax policy preferences we expect to see in our experiments based on this literature. Lastly, it describes our tax policy experiment and presents the results of our first set of trials focusing on the effects of information on tax policy preferences and policy choices by majority vote and determinants and dynamics of voting behavior. We conclude with our outlook for future research.
Introduction
Many states in the U.S. have fallen into deficit and are seeking ways to develop
new fiscal resources. Following decades of budget cutting, the political debates center on what kind of tax to levy or increase: the major options are income or sales taxes. Like other states, fiscal policy in Alaska is a major dilemma. The state has run a deficit for eleven of the last fifteen years. These deficits are not driven by escalating spending, but by periodic declining revenues from a finite resource: oil. The state needs a broad based tax to fill the revenue gap. However, political opinion in the state has been so fragmented on the various tax options that the legislature has been unable to forge a viable plan.
In Alaska as elsewhere, the central dilemma concerns how to forge a majority
coalition to adopt a tax policy the public will accept as fair. Furthermore, in our teaching of economics and political economy students often initially struggle to understand the differences between progressive and regressive taxes, their implications for different income groups in society, and the trade-offs associated with public goods. Experimental economics can help us address this dilemma. Laboratory methods can be used to study how information about the policy options affects tax preferences revealed in voting, and to examine the dynamics of coalition building.
Our web-based computerized tax simulation is designed to explore how
household differences, information and perceptions of fairness affect the formation of voting coalitions to adopt a tax policy and fund public services. In our current experiment eleven or more subjects choose among four alternative tax policies labeled A through D. The subjects are each assigned a household income; collectively they represent the distribution of incomes across Alaskan households. Thus each policy option affects each household differently. If a policy is adopted by majority vote, participants receive equal amounts of public services and pay their respective tax liability. If no policy is adopted,
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Abstract
Many states in America have fallen into deficit and are seeking ways to develop new
fiscal resources. The current dilemma in Alaska and other states centers on what kind of
tax--income taxes, sales taxes or head taxes--might be agreed upon and in what
proportions. The issues related to forming voting coalitions to adopt tax policies the
public will accept as fair are similar in all the states struggling with fiscal policy.
Experimental methods can help us address this dilemma by teaching students about
public goods, tax burden equity, and tradeoffs. This presentation discusses the
importance of exploring tax policy preferences through experimental social science
methods in classrooms. Second, it presents a set of hypotheses about the tax policy
preferences we expect to see in our experiments based on this literature. Lastly, it
describes our tax policy experiment and presents the results of our first set of trials
focusing on the effects of information on tax policy preferences and policy choices by
majority vote and determinants and dynamics of voting behavior. We conclude with our
outlook for future research.
Introduction
Many states in the U.S. have fallen into deficit and are seeking ways to develop
new fiscal resources. Following decades of budget cutting, the political debates center on
what kind of tax to levy or increase: the major options are income or sales taxes. Like
other states, fiscal policy in Alaska is a major dilemma. The state has run a deficit for
eleven of the last fifteen years. These deficits are not driven by escalating spending, but
by periodic declining revenues from a finite resource: oil. The state needs a broad based
tax to fill the revenue gap. However, political opinion in the state has been so fragmented
on the various tax options that the legislature has been unable to forge a viable plan.
In Alaska as elsewhere, the central dilemma concerns how to forge a majority
coalition to adopt a tax policy the public will accept as fair. Furthermore, in our teaching
of economics and political economy students often initially struggle to understand the
differences between progressive and regressive taxes, their implications for different
income groups in society, and the trade-offs associated with public goods. Experimental
economics can help us address this dilemma. Laboratory methods can be used to study
how information about the policy options affects tax preferences revealed in voting, and
to examine the dynamics of coalition building.
Our web-based computerized tax simulation is designed to explore how
household differences, information and perceptions of fairness affect the formation of
voting coalitions to adopt a tax policy and fund public services. In our current experiment
eleven or more subjects choose among four alternative tax policies labeled A through D.
The subjects are each assigned a household income; collectively they represent the
distribution of incomes across Alaskan households. Thus each policy option affects each
household differently. If a policy is adopted by majority vote, participants receive equal
amounts of public services and pay their respective tax liability. If no policy is adopted,
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