Jan-Emmanuel De Neve - Let voters express their views on how their tax is spent
6 December 2013
Tax avoidance is one of the great economic scourges and social injustices of our times. The psychology is simple: why pay the State more when perfectly legal wheezes can reduce your burden?
Three academics from the UK and US have come up with a compelling analysis of what lies behind the tax gap, and a simple solution to tackle it.
Through a series of experiments at Harvard and elsewhere, they conclude that when voters are given the opportunity to express their views on where their contribution is spent they are less likely to diddle.
With shortfalls estimated at £42 billion in Britain and $385 billion in America, this would make a serious difference. The authors are not advocating a return to the old debate about “hypothecation” — in which a particular tax is raised for specific spending — but an advisory role for the public to increase confidence in the system. Their evidence suggests that tax take-up increases by up to 20 per cent if individual taxpayers are given greater “ownership “of the process.
Surprisingly, it seems people’s preferences are not out of kilter with present priorities. Students want a bit more for education; young parents opt for extra on childcare; older people seek more for health. But the results roughly even themselves out. So the government gets more money, and its broad spending priorities are more or less endorsed.
“Our results obtained from lab and survey studies point to a smart and no-cost way to help close the tax gap,” says one of the report’s authors, Jan-Emmanuel Neve, from School of Public Policy, University College London and the Centre for Economic Performance at the LSE. “Paying taxes feels to people like dumping a lot of money in a big black hole.”
The present way of operating makes for bad politics and even worse economics. David Cameron proselytises about giving voters more information. Yet the proposed half-solution, personalised statements giving citizens data about where their money is spent, does not do the trick. Figures from the report suggest virtually no difference when information is received passively. Far more compelling is the idea of active participation.