How Tax Enforcement Increases Revealed Preference for Redistribution
Does a more equitable tax system lead to a more equitable society? Exploring the impact of state intervention against tax evasion in Italy, Slovakia, and Australia this study shows that individuals' demand for redistribution is affected by changes in tax enforcement. In Italy and Slovakia, granular data on local tax enforcement is associated with revealed individual redistributive attitudes. Leveraging an Italian cadastral update, I employ a difference-in-difference design exploiting the policy’s staggered implementation. As the horizontal equity of the municipal property tax increases, individuals reveal increased intrinsic demand for local social spending, electing more frequently to redirect 0.5% of their income tax from the national budget to social service expenditure in their municipality. Similarly, in Slovakia, local enforcement against VAT-evading businesses is associated with a similar choice to redirect 2% of personal income tax to public-benefit organization. Turning to the potential electoral consequences of such attitudinal changes, in the 1998 Australian elections, I link the zipcode density of evaders caught by the tax authority with the vote share for the Liberal party, which campaigned on a single-issue platform for regressive tax reform. These patterns illustrate how government action influences individual values, and that a better-functioning taxation system supports a more progressive society.
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