Who Benefits from Tax Rate Transparency? Evidence from the Laboratory

ABSTRACT

This paper provides evidence on the effects of tax rate transparency on the decisions of individuals who transact in a competitive environment. In a series of experimental markets, participants were required to generate after-tax trading profit sufficiently large to generate a specific return on investment. The degree to which the relevant tax rate was transparent to participants varied across markets. The results indicate that a lack of tax rate transparency had a negative effect on profits earned in the markets. Greater transparency led to higher profits for those who had access to the information about the relevant tax rate. In addition, the effect of greater transparency spilled over to those who did not have access to the information about the relevant tax rate. It was those participants who benefitted the most over the course of the experiment—simply by participating in markets in which the tax rate was transparent to others.

Keywords:  experiment, complexity, taxes, transparency

Source : Scott J. Boylan (2013) Who Benefits from Tax Rate Transparency? Evidence from the Laboratory. The Journal of the American Taxation Association: October 2013, Vol. 35, No. 2, pp. 65-83.