Why do you want lower taxes: municipal income tax rates

The factors shaping people’s preferences for municipal labour income tax rates in Sweden were assessed, using survey data. The tax rate actually faced by the respondents had explanatory power for their attitudes towards the tax rate only when a few socio-demographic explanatory variables were included. When a richer set of variables were included the association disappears. The hypothesis that this small or nonexistent effect from the actual tax rate is caused by a Tiebout bias finds no support, but IV-estimations indicate that the actual municipal tax rate may be of importance for the attitudes towards the tax rate. People with higher education, regularly reading a newspaper, agreeing with the political left, and stating that they were satisfied with the municipal services were less likely to want to decrease the municipal tax. People with low income, stated low knowledge about society, and agreeing with the political right were instead more likely wanting to decrease the municipal tax.

Introduction: Individual income taxes are an important part of government revenues in all western countries. To be able to collect these taxes – and since politicians want to get reelected – these taxes need to be perceived as legitimate. What determines people’s preferences about income taxes is therefore of great interest. Are people satisfied with the taxes they pay? Do they vote with their feet, by moving, when they can, to pay taxes that accord with their preferences? And what determines their preferences? Are self-interest and misperceptions important?

Author: Niklas Jakobsson

Source: Göteborg University

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