Phishing Taxpayers? Evidence from Fungibility of Special Taxes
Akerlof, George A
Eissa, Nada O
The concept of fungibility is central in corporate finance. Its origin can be traced to a series of famous papers by Miller and Modigliani on the cost of capital and theory of investment. The intuition behind the proposition has inspired several studies beyond the realm of corporate finance. However, its applicability to government expenditures is unclear. In the empirical part of this thesis, we evaluate if the intuition behind the irrelevance proposition also holds for special taxes. We build a basic model of government expenditure behavior to test the fungibility of special taxes. Through two different characterizations, we find that library special taxes imposed in California from 1992 - 2009 are fungible. This result motivates further analysis of areas where governments choose to raise special taxes. To answer this we analyze library ballots city residents in California voted on to approve special taxes. We find that these ballots and campaigns appeal to the monkey-on-the-shoulder of a voter. Through persuasive campaigns and craftily worded official communications governments exploit the tendency of voters to graft stories from advertisements onto the stories they tell themselves. Effectively, governments employ special taxes as a tool of fiscal illusion and mute out tax salience through stories targeted at voter’s vulnerable emotions.
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Jimenez, Luis Felipe (Georgetown University, 2016)This study evaluates the influence of payroll taxes in the Colombian labor market by assessing the relationship between a reduction of labor costs and the number of informal workers relative to the overall number of workers. ...