Fiscal illusion prevails if people are prone to systematic misperceptions of the tax burden. We present an experiment design to test whether fiscal illusion affects voter behavior. There are two treatments. These are equivalent with respect to the tax burden, but differ with respect to which side of the market pays the tax. In the 'intransparent' treatment, experimental subjects have to anticipate that taxes will be shifted to the other side of the market to correctly perceive their tax burden. In the 'transparent' treatment, there is no shifting in equilibrium. Our results show that individual voting behavior is significantly different across treatments. However, people appear to also apply heuristics unrelated to the shifting process to predict tax prices.

Co-author Jean-Robert Tyran