Open Access Senior Thesis
Bachelor of Arts
© 2012 Rei Kawano
This paper analyzes whether the decreasing progressivity of the US Federal Tax system appear to affect taxpayer satisfaction. I use data from the publicly available General Social Survey and combine them with average tax rates from Piketty and Saez (2007). In this study, two distinct questions are addressed: (1) Is a taxpayer’s belief that his or her own federal income tax is too high affected by their actual average tax rates? (2) Is a taxpayer’s belief that his or her own federal income tax is too high affected by the progressivity of the federal income tax?
The results show that taxpayer dissatisfaction is consistently positively correlated to average taxes and progressivity. Upon dividing up our respondents to income quintiles, my results reveal two interesting findings: (1) the magnitude of dissatisfaction for a given increase in average taxes follows a U shaped pattern across the income quintiles, where taxpayers in the third quintile were most responsive to fluctuations in tax rates, (2) the magnitude and strength of the correlation between the various progressivity variables and taxpayer dissatisfaction was consistent for all income quintiles, implying that taxpayers are not recognizing changes in progressivity. These findings disclaim the homo economicus assumption. Further, after dividing our respondents based on their educational attainment, I find that taxpayers with higher levels of education are more responsive to changes in tax rates.
Kawano, Rei, "Taxation with Representation Ain't So Hot Either: An Empirical Analysis of Taxpayer Satisfaction" (2012). CMC Senior Theses. 370.