Paying Your Fair Share: Perceived Fairness and Tax Compliance
We provide evidence on the role of perceived fairness in tax compliance. Are households more willing to pay taxes when they believe others are contributing their fair share? We investigate this question through a natural field experiment in the context of U.S. property taxes. Using an information-disclosure experiment, we exogenously shifted households’ perceptions of the average tax rate paid by others. We find that higher perceived average tax rates increase perceptions of fairness and reduce the likelihood of filing a tax appeal. We quantify the effect of fairness in monetary terms: for every additional $1 paid by the average household, an individual taxpayer is willing to contribute an additional $0.43. In the field experiment, subjects were informed about the average tax rate but not why it might differ from their own. In a complementary survey, we show that this context matters: when households learn that others pay lower rates due to exemptions, such as for disability or advanced age, they are more willing to tolerate unequal tax rates.
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