Wednesday, July 25, 2012

Trust in government and preferences for redistribution

Scandinavia is puzzling for Americans or Southern Europeans. Taxes are very high, yet people are happy about paying their taxes and there is surprisingly little tax fraud or evasion. Why is there such tax morale? Of course, these taxes buy you services that you do not need to obtain on the market, such as social assistance, low crime, and health insurance. But even high incomes, who should prefer a model of market goods with little redistribution, are happy. What could one do to get this apparently Pareto improving outcome?

Eiji Yamamura does not provide directly insights about Scandinavia, but what influences regional tax morale in Japan. It turns out that if you have high trust in government, and you share it with your neighbors, you are more willing to accept income redistribution through taxation, and you perceive the tax burden to be lower. Thus, there is no miracle. You need a better government if you want higher tax morale.

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