TITLE:
A Behavioral Economic Study of Tax Rate Selection by the Median Voter: Can the Tax Rate Be Influenced by the Name of the Publicly Provided Private Good?
AUTHORS:
Neil J. Buckley, David Cameron, Katherine Cuff, Jeremiah Hurley, Stuart Mestelman, Stephanie Thomas
KEYWORDS:
Public Provision, Health Care, Tax Financing, Voting, Context Effect
JOURNAL NAME:
Theoretical Economics Letters,
Vol.8 No.3,
February
14,
2018
ABSTRACT: This paper presents the results of a behavioral
economics study to test if the tax rates submitted to finance the public provision of a
private good are influenced by changing the name of the private good. A revealed-preference
laboratory decision-making experiment is used to test if participants choose
significantly different tax rates to support provision of a private good named as a health care
investment compared to an identical good named as a neutral monetary
investment. Although
some previous studies focusing on both framing and context effects find
differences associated with health versus non-health environments, these
studies have not involved voting over public provision of a private good. In
our experimental environment, participants with different income endowments provide
their preferred proportional tax rates for financing public provision of a
private good in either a neutral or a health context. The implemented tax rate is the median preferred tax
rate, and once the budget is determined, each participant receives the same
quantity of the publicly provided private good. In each context, the payoff functions are
the same. The only difference between the contexts is the name attached to the
publicly provided private good, regardless
of the name attached to the publicly provided private good, consuming it imposes no
externalities. This controls for the positive externality characteristics of
many health care goods, but not for preferences evoked by the merit good
character of health care which factor into decisions about the public provision
of health care. We find that the theoretical predictions of the median voter
model are generally supported by the data. However, the conjecture that the implemented tax rate
would be affected by context is not supported by the results.