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Rules Matter:

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 and Australia this study shows that individuals' preference for redistribution is affected by changes in tax enforcement, but the direction of the relationship depends on the nature of the enforcement. In Italy, local shocks to tax enforcement are associated with stronger pro-redistribution behaviors. Leveraging an Italian cadastral update, which led to stricter enforcement of property taxation, I employ a difference-in-difference design. As the horizontal equity of the municipal property tax increases, individuals reveal increased intrinsic demand for local social spending, as more taxpayers elect to donate to social initiatives. By contrast, in the 1998 Australian elections, the zipcode density of evaders caught by the tax authority is associated with the vote share for the Liberal-National coalition, which campaigned on a single-issue platform for regressive tax reform. I argue that the divergence stems from different perceptions of the legitimacy and equity of enforcement, which were viewed favorably in Italy and unfavorably in Australia, where tax authorities were met with widespread protests. These patterns illustrate how government action influences individual preferences and attitudes and that a positively-perceived, better-functioning taxation system supports a more progressive society.

Paper (to request the current working paper draft, please get in touch!)

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