Behavioral Public Finance: Tax Design as Price Presentation

Authors: Krishna A.¹; Slemrod J.²

Source: International Tax and Public Finance, Volume 10, Number 2, March 2003 , pp. 189-203(15)

Publisher: Springer

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Abstract:

In this essay we review the evidence from marketing research about price presentation of consumer products and discuss how these lessons have been applied—consciously or unconsciously—in the design of the U.S. tax system. Our perspective is that, in most situations, the designers of the tax system attempt to minimize the perceived burden of any given amount of tax collections. We allow, though, that in certain situations an additional goal is to maximize the perceived burden of others. We also investigate how, when the objective is to encourage a particular activity, price presentation may enhance the achievement of that goal for a given amount of tax subsidy. We conclude by addressing the ethical and normative implications of price presentation in the tax system.

Keywords: tax policy; behavioral economics; price presentation

Language: English

Document Type: Research article

Affiliations: 1: University of Michigan, Business School, Ann Arbor, MI 48109-1234 akrishna@umich.edu 2: University of Michigan, Business School, Ann Arbor, MI 48109-1234 jslemrod@umich.edu

Publication date: 2003-03-01