Tax Law and Redistribution

Abstract

This chapter examines the implications of behavioral insights for tax design, taxpayers’ decision-making, and tax compliance. With regard to tax design, the chapter discusses policymakers’ own heuristics and biases, and their catering to (or exploitation of) the biased judgments of the public at large. Regarding economic decision-making, the chapter explores the dark and bright sides of tax saliency. With regard to compliance, it explains why people pay taxes, and how this compliance might be further enhanced. Finally, the chapter explains how cognitive factors affect taxpayers’ inclination to challenge tax liability. Additionally, the chapter describes the behavioral contribution to positive and normative analyses of redistribution, by shedding new light on how people form judgments about tax progressivity; the cognitive ramifications of poverty; wealth and subjective well-being; and the choice between methods and objects of redistribution. The chapter also comments on the use of taxes as a means of modifying human behavior.