Fiscal knowledge and its impact on revealed MWTP in Covid times: Evidence from survey data

Abstract

Individual preferences over public policies should ideally be based on the possession of correct information about their reality. To test whether this holds, we conducted four waves of a survey, every six months since May 2020 (still under the COVID-19- lockdown), asking basic macro questions regarding the level of tax burden, of public debt, and of the underground economy in Spain. The percentage of correct responses (defined within broad ranges) never reaches 35%, and it is by far lowest for public debt. For the tax burden, leftwing individuals (with respect to right-wing) make more errors, and highly educated people (with respect to the rest of society) make fewer. No clear deterministic patterns arise for públic debt and for the underground economy.I Independently of the percentage of errors, we infer the existence of relative biases across different social characteristics: highly educated people tend to undervalue the level of the tax burden and of the underground economy and overvalue the level of public debt; leftist individuals undervalue the level of the tax burden and of the public debt but overvalue the level of the underground economy. There are also significant gender biases: with respect to men, women overvalue the tax burden and the importance of the underground economy, and undervalue the level of public debt. This misinformation and biases correlate with the marginal willingness to pay taxes (MWTP). MWTP is 10% higher under the presence of misinformation. This is particularly so for those individuals who undervalue the real level of the tax burden. Although COVID-19 generates greater interest to collect information, including about fiscal issues, there is a decrease in knowledge. The pandemic seems to have produced an excess of information up to causing misinformation. We also observe a general tendency to undervalue the level of public debt provoked by the exposure to COVID-19, which might be caused by the lax fiscal policy carried out during the pandemic.