Proceedings of The 10th International Conference on New Ideas in Management, Economics and Accounting
How Much Do You Think About Taxes? Estimating Attention Using Salience of the Tax Schedule
This paper measures the role of attention in the behavioral response to taxation. I use variation in salience of the income tax schedule in the UK to identify the fraction of attentive taxpayers. Phase-out of tax deductions and tax credits create unsalient marginal tax rates compared to the income tax bands. Building on Saez (2010), I develop a framework to account for inattention when estimating the elasticity of taxable income and develop four testable predictions. Analy- sis of the Survey of Personal Incomes (SPI) provide evidence that up to a third of UK taxpayers did not pay attention to the deduction of their personal allowance.
keywords: taxation, behavioral, salience, bunching.