Taxed fairly? How differences in perception shape attitudes towards progressive taxation

Abstract

Empirically, the poor are more likely to support increases in the level of tax progressivity than the rich. Such income-stratified tax preferences can result from differences in preferences of what should be taxed as argued by previous literature. However, it may also result from income-stratified perceptions of what is taxed. This paper argues that the rich perceive higher levels of tax progressivity than the poor and that tax perceptions affect individuals' support for progressive taxation. Using data from an Austrian survey experiment, we test this argument in three steps: First, in line with past research, we show that individuals' income positions are connected to individuals' tax preferences as a self-interest rationale would predict. However, second, we show that this variation is mainly driven by income-stratified tax perceptions. Third, randomly informing a subset of the sample about actual tax rates, we find that changing tax perceptions causally affects support for redistributive taxation among those who initially overestimated the level of tax progressivity. Our results indicate that tax perceptions are relevant for forming tax preferences and suggest that individuals are more polarized in their perceptions of who pays how much taxes than in their support for who should pay how much tax.