A Choice Experiment on Tax : Are Income and Consumption Taxes Equivalent?

Kurokawa, Hirofumi; Mori, Tomoharu; Ohtake, Fumio

A Choice Experiment on Tax : Are Income and Consumption Taxes Equivalent?

Kurokawa, Hirofumi; Mori, Tomoharu; Ohtake, Fumio

Institute of Social and Economic Research Discussion Papers, 2016, 966, 1-24

Number of Access:475（2025-09-10 00:09 Counts）

Identifier to cite or link to this item: https://hdl.handle.net/11094/55415

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Title	A Choice Experiment on Tax : Are Income and Consumption Taxes Equivalent?
Creator	NRID 1000090811430 1000090811430 CreatorName Kurokawa, Hirofumi
	NRID 1000000733057 1000000733057 CreatorName Mori, Tomoharu
	NRID 1000050176913 1000050176913 ORCID 0000-0002-8825-7446 0000-0002-8825-7446 researchmap permalink ohtake ohtake Scopus Author ID 6701666319 6701666319 CreatorName Ohtake, Fumio
Subject	Tax equivalence
	Income tax
	Consumption tax
	Misperception of tax
	Behavioral and experimental economics
Abstract	We test the equivalence of income and consumption taxes through a choice experiment. Under a given set of income and consumption parameters, subjects were asked to choose among an income tax of 20%, a consumption tax of 25% (which is an equivalent tax burden), a consumption tax of 22%, and a consumption tax of 20%. Our results showed that subjects prefer income tax to consumption tax when the nominal consumption tax rate is higher than the nominal income tax rate. However, subjects tend to prefer consumption tax to income tax when the nominal tax rates are identical. Our result, that subjects prefer income tax to consumption tax despite a higher tax burden, implies the consumption tax miscalculation bias. The consumption tax miscalculation bias is one where subjects miscalculate the amount of consumption tax as if it is declared by tax inclusive, as in the case of income tax, despite consumption tax being tax exclusive. If the income tax burden is equivalent to the consumption tax burden, subjects prefer income tax. This result implies that income and consumption taxes are not equivalent due to the consumption tax miscalculation bias.
Publisher	The Institute of Social and Economic Research, Osaka University
Source Title	Institute of Social and Economic Research Discussion Papers
Volume (Issue)	966
Page	1-24
Date of Issued	2016-03-28
Language	English
Handle URL	https://hdl.handle.net/11094/55415
Relation.references	URI https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/2016/DP0966.pdf
Access Rights	metadata only access
Category	ディスカッション／ワーキング・ペーパー DP/WP
Category	Institute of Social and Economic Research Discussion Papers

Resource Type	technical report
Local Type	DP/WP
DCMI Type	Text
DCTERMS.bibliographicCitation	Institute of Social and Economic Research Discussion Papers. 2016, 966, p. 1-24
DC.title	A Choice Experiment on Tax : Are Income and Consumption Taxes Equivalent?
DC.creator	Kurokawa, Hirofumi
	Mori, Tomoharu
	Ohtake, Fumio
DC.publisher	The Institute of Social and Economic Research, Osaka University
DC.language' scheme='DCTERMS.RFC1766	English
DC.type' scheme='DCTERMS.DCMIType	Text
DCTERMS.issued' scheme='DCTERMS.W3CDTF	2016-03-28
DC.relation' scheme='DCTERMS.URI	https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/2016/DP0966.pdf
DC.subject	Tax equivalence
	Income tax
	Consumption tax
	Misperception of tax
	Behavioral and experimental economics
DCTERMS.abstract	We test the equivalence of income and consumption taxes through a choice experiment. Under a given set of income and consumption parameters, subjects were asked to choose among an income tax of 20%, a consumption tax of 25% (which is an equivalent tax burden), a consumption tax of 22%, and a consumption tax of 20%. Our results showed that subjects prefer income tax to consumption tax when the nominal consumption tax rate is higher than the nominal income tax rate. However, subjects tend to prefer consumption tax to income tax when the nominal tax rates are identical. Our result, that subjects prefer income tax to consumption tax despite a higher tax burden, implies the consumption tax miscalculation bias. The consumption tax miscalculation bias is one where subjects miscalculate the amount of consumption tax as if it is declared by tax inclusive, as in the case of income tax, despite consumption tax being tax exclusive. If the income tax burden is equivalent to the consumption tax burden, subjects prefer income tax. This result implies that income and consumption taxes are not equivalent due to the consumption tax miscalculation bias.
DC.format	55415
citation_title	A Choice Experiment on Tax : Are Income and Consumption Taxes Equivalent?
citation_author	Kurokawa, Hirofumi
	Mori, Tomoharu
	Ohtake, Fumio
citation_publisher	The Institute of Social and Economic Research, Osaka University
citation_language	English
citation_date	2016-03-28
citation_journal_title	Institute of Social and Economic Research Discussion Papers
citation_volume	966
citation_firstpage	1
citation_lastpage	24
citation_public_url	https://hdl.handle.net/11094/55415
citation_abstract_html_url	https://www.iser.osaka-u.ac.jp/static/resources/docs/dp/2016/DP0966.pdf

A Choice Experiment on Tax : Are Income and Consumption Taxes Equivalent?

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