Biased Preferences for Wealth Taxation: The Case of Misperceived Tax Burden Consequences

The individual capacity to form personal preferences constitutes an essential element of thedemocratic process. At the same time, policies with far-reaching consequences often require profound expertise. Taxation is such an example. Due to its complex character, bounded rationality might induce biases causing other outcomes than intended. This paper quantifies shifts in stated preferences for wealth taxation caused by misperceived burden consequences of commonly politically discussed tax parameters: tax allowances and tax rates. For this, we conducted a randomized survey experiment with over 1,200 respondents in Germany. In a 2 by 2 design, our respondents were randomly selected to indicate both their preferred tax allowance and tax rate for either a yearly or a one-time wealth tax. Our treatment group was provided with easy-to-understand information on the resulting effective lifetime tax burden for the respective instrument. We find the preferred effective tax rate to drop by almost 15 percentage points for a yearly wealth tax if our participants are fully informed, whereas we do not find this effect for the one-time wealth tax. In terms of informed preferences our respondents preferthe yearly wealth tax over a one time wealth tax if misperceptions are resolved: the preferred effective tax burden of a yearly wealth tax is about 25 percentage points higher (40.0% vs.15.2%). While not being able to fully explain the source of this difference, we argue that both the total burden as well as the reasonability of single payments might be factors that form preferences for tax parameters.