Inheritance Tax and Income Tax: how much should people pay?

Luis Miller, Spanish National Research Council
José A. Noguera, Universitat Autònoma de Barcelona
Leire Salazar, UNED
Project selected in the Call for experimental research projects in the social sciences

In this experimental analysis conducted with a representative sample of the Spanish population, the preferred tax rates are analysed for two classes of taxes, Income Tax (IT) and Inheritance Tax (IHT), across a variety of taxpayer income and inheritance assumptions, and taking into account people’s perception of their own position in income distribution. The results confirm greater support for higher rates of IT and furthermore suggest that the perceived relative level of income —not only the real level— plays a role when explaining the differences in social support for certain taxes. Furthermore, intensifying the fiscal culture of citizens and improving the knowledge of their position in income distribution could give rise to a greater willingness to pay progressive taxes.
Key points
  • 1
       The large majority of citizens recognise the need to pay taxes and approve of their existence as an instrument for redistribution and the funding of public services – nearly 75% of Spaniards according to the survey Public Opinion and Fiscal Policy, 2021. This willingness to accept the payment of taxes is not the same for all citizens nor for all types of tax.
  • 2
       Inheritance Tax (IHT) faces, in many countries, greater social and political resistance than other taxes such as, for example, Income Tax (IT). This is thus despite the fact, according to studies on distributive justice, that inequality is accepted better when it is perceived as derived from unequal personal efforts.
  • 3
       Surveys on taxation issues do not prevent citizens from hiding their true preferences; this experimental study minimises this risk. The experiment aims to determine which factors influence the valuation of the two types of taxes, IT and IHT, under different conditions.
  • 4
       Citizens choose average rates for IT that are appreciably higher and more progressive than for IHT in all circumstances. While, in the majority of hypothetical scenarios, the rate selected for IHT does not reach 10%, for IT it exceeds 30% for hypothetical subjects with very high incomes. In both cases, people opt mainly for higher rates than those actually in force in Spain’s different autonomous communities.
  • 5
       When, in the experiment, subjects are pushed to think about their own position in income distribution, the reflection leads them to opt for higher rates for both taxes. The difference can reach up to 4 points in certain conditions.
  • 6
       Of the subjects in the experiment, 90% pinpoint themselves incorrectly in income distribution. The majority locate themselves in middle positions; the rich consider themselves less rich than they are, and the poor less poor. Those who consider themselves poorer than they actually are support lower rates for IHT.

Higher average rates are preferred for Income Tax than for Inheritance Tax. In both cases, the preferred rates are higher than those that currently exist.

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Authors

Luis Miller , Spanish National Research Council
José A. Noguera , Universitat Autònoma de Barcelona
Leire Salazar , UNED

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