Most people are not economists: Citizen preferences for corporate taxation

Abstract

On what bases should corporations be taxed? This article presents evidence from a series of discrete choice experiments designed to elicit the tax preferences of ordinary citizens. We find that respondents favour higher taxes on more profitable companies, but not high enough to make taxes progressive. Moreover, respondents prefer higher taxes on more internationally mobile companies, which is at odds with well-known results from optimal tax theory. The experiments were conducted in Tanzania, making this result all the more striking as developing countries are particularly sensitive to location decisions of corporations. We also find that citizens favour lower taxes on companies that have more local employees, and higher taxes on foreign owned companies compared to domestic ones. The latter result is not due to perceived differences in local or foreign employment or other local impacts, suggesting a strong home bias in respondent preferences. Furthermore, we find significant gender differences. Men appear more efficiency oriented in their tax preferences. Both men and women are primarily in favour of companies that offer employment to their own gender, and male respondents focus more on job growth than on job security. The results have important implications for debates on the legitimacy of tax policies.