Abstract
It is well known that economic inequality has risen in many democratic states over the last several decades; yet there is little evidence that these states have responded with tax and transfer policies that would significantly mitigate the impact of these changes on post-tax and transfer outcomes (e.g., Bonica et al. 2013). The lack of a policy response to rising inequality has two broad interpretations. The first is that democracy is failing to deliver the policies that voters want, either because of representation failures (due, e.g., to money in politics) or because states are constrained by efficiency considerations from meeting voter demands (Gilens 2012). The second is that voters do not necessarily want rising inequality to be corrected by more generous tax and transfer policies (Ballard-Rosa, Martin & Scheve 2017). One obviously important way to assess the relative strengths of these two interpretations is to determine what the policy preferences of voters are and whether they are influenced by information about inequality. Our proposal focuses on these questions.
The tax system is one of the most powerful tools with which states can influence inequality. A key characteristic of modern tax systems is that they are multidimensional -- countries can tax different types of economic activities, including income, wealth, property, and consumption; and they often choose to tax different levels of each of these at different rates. This creates a challenge for characterizing the policy preferences of voters over the tax system and in particular its features, such as progressivity, that influence its impact on inequality.
In this research, we propose fielding a conjoint survey experiment on a representative sample of adults in Germany to study tax rate preferences across the income distribution while taking account of the impact that alternative tax plans have on total revenue raised. Our methodology not only allows us to characterize how popular alternative rates are but provides evidence of the elasticities of support for income tax plans with varying rates across the income distribution, and for taxes on income versus ones on consumption (e.g., VAT). These elasticities of public support have wide-ranging implications for the political feasibility of varying tax policy reforms.
In addition to employing an innovative methodology to measure multi-dimensional tax preferences, the research proposed here will also investigate the impact of inequality on tax policy preferences. Prior research on the question of how, or even whether, inequality affects redistributive preferences, including tax policy, is primarily observational. Researchers have investigated cross-sectional correlations of support for redistribution, or for taxing high incomes, with national or sub-national inequality, and some have traced such correlations over time (Alt & Iversen 2017, Kelly & Enns 2010, Lupu & Pontusson 2011, Moene & Wallerstein 2001). While informative, these studies are often difficult to interpret because levels, and even changes, in inequality (and certainly perceptions of either) are endogenous to policy and policy opinions.