An Exploratory Study into Marginal Tax Rate Consciousness in a Low-Complexity Low-Rate Income Tax Jurisdiction

Abstract

Studies exploring taxpayers’ awareness of their marginal income tax rates (MTRs) have been undertaken mainly in liberal democratic countries in Western Europe and North America where taxes on income are characterised by comparatively high rates and tax law complexity. This paper presents the findings of an exploratory study into taxpayers’ MTR perceptions in Singapore, a low-tax-rate jurisdiction with a comparatively simple income tax system. Generally, taxpayers in Singapore appear to be more MTR-conscious than their counterparts in Europe and North America, and a number of jurisdictional-specific factors are suggested as possible reasons for this. Overall, there was a (net) overestimation of MTRs attributable largely to a preponderance of lower-income taxpayers making relatively large overestimations. Consistent with the findings of earlier studies, there was substantial heterogeneity in MTR consciousness among taxpayers, with the accuracy of MTR perceptions found to be correlated with several socio-economic characteristics and tax-related circumstances of the taxpayers.