Pandemic and progressivity

International Tax and Public Finance https://doi.org/10.1007/s10797-021-09700-2 POLICY WATCH Pandemic and progressivity Alexander Klemm1 · Paolo Mauro1 Accepted: 27 August 2021 © International Monetary Fund, under exclusive licence to Springer Science+Business Media, LLC, part of Springer Nature 2021 Abstract Based on a survey of 2500 US adults, we show that serious illness or job losses caused by the COVID-19 pandemic increase support for temporary progressive levies or structural progressive tax reform, controlling for socioeconomic and demographic characteristics. People who reveal preferences for spending items (more on police, military, border protection; less on education, health, environment) that are associated with communitarian (rather than universalist) moral perspectives show generally weaker support for progressive reforms, but more of them change their views following personal experience. The results are consistent with previous findings that economic upheavals can mold individuals’ views on policy matters. Keywords Solidarity taxes · Surcharges · Surveys · Attitudes · Progressivity · Tax reform JEL Classification H24 · H23 · H12 1 Introduction The impact of the COVID-19 pandemic on both inequality and the state of the public finances has rekindled interest in understanding people’s attitudes toward policies that affect the distribution of income or access to basic public services. Such policies include, for example, taxation and its degree of progressivity, and the composition of public expenditures. The pandemic has also given renewed prominence to the question whether directly experiencing major economic upheavals changes people’s attitudes toward public policies. To address these questions, this paper reports the results of a survey of about 2500 US individuals in October 2020 that elicits respondents’ views on potential changes in taxation and on who should bear the burden, as well as which types of expenditures could be reduced or increased. The * Alexander Klemm 1 International Monetary Fund, Washington, DC, USA 13 Vol.:(0123456789) A. Klemm, P. Mauro survey explores the impact of personal experiences stemming from the pandemic— serious illness or job losses—in shaping respondents’ attitudes toward these fiscal policy choices. The survey was undertaken at a time when a significant share of US residents had already been gravely affected by COVID-19, and the issue was among the most salient during the contentious run-up to the November 2020 election. This is the first survey-based analysis to gauge people’s attitudes toward tax and other fiscal policy choices in the context of the pandemic, relating such attitudes to respondents’ personal experience with the pandemic, moral perspectives, and demographic characteristics.1 It builds on previous studies that have advanced the understanding of people’s attitudes toward taxation (Stantcheva, 2020)2 and public expenditure choices (Enke, 2020; Enke et al., 2020). Focusing on a US context— where previous studies have established certain regularities in the data—allows us to circulate a more concise survey and makes it easier to relate the results in the present paper to findings obtained in a pre-pandemic context by other researchers. The objective of the survey was to elicit people’s views in favor of or against the following: • Increasing taxation as a way of financing additional expenditures caused by the pandemic and the need to foster the economic recovery, by introducing a temporary tax explicitly linked to this goal; • Permanently increasing the degree of progressivity of taxation;3 • Reducing or further increasing various expenditure categories, such as health, education, military, etc. This is of interest in its own right;4 in addition, based on results by Enke (2020) and Enke et al. (2020), it provides insight into each respondent’s moral perspectives (see below). Moreover, for some questions, the survey used different labels (“contribution” versus “tax”) and made appeal to different justifications (“solidarity” versus “financing the recovery”) to gain insights into the effectiveness of different ways of 1 Previous analyses of the determinants of individual attitudes toward progressive taxation have generally found that fairness considerations and beliefs regarding the role of effort for economic success are more important than an individual’s financial interest (Alesina & Giuliano, 2009; Hennighausen & Heinemann, 2014). 2 In her pre-pandemic survey of US individuals, Stantcheva (2020, Fig. 19, p. 53) found that one quarter of Republicans and three quarters of Democrats supported higher income taxes on the rich to fund investment. If used to fund programs for low incomes, support stood above one half for both groups. 3 Participants were asked whether they favored an increase in the progressivity of the tax system. In interpreting the results, it is worth recalling previous findings that respondents make systematic errors in the estimation of tax rates and tend to underestimate the existing progressivity of the system (Gideon 2017). 4 Forenmy et al. (2020) report early evidence that the pandemic caused a sizable increase in preferred spending on health. Rees-Jones et al. (2020) find that support for health spending and social safety nets is positively associated with (a) COVID-19 deaths and infections in the respondent’s county, (b) the pandemic-induced change in the unemployment rate in the respondent’s county, and (c) survey elicitations of the respondent’s perceptions of COVID-19’s consequences. 13 Pandemic and progressivity presenting policy packages and to understand what resonates best with different segments of the respondents. The key results are as follows: • Attitudes regarding taxation, and progressive taxation in particular, are more favorable among people who hold “universalist” rather than “communitarian” moral perspectives, elicited in the survey through questions about spending priorities. • Respondents who have experienced serious illness or job loss caused by the COVID-19 pandemic, or who personally know someone who has, favor progressive taxation to a greater extent than others in the sample. More people with communitarian perspectives are likely to shift their views in favor of progressive taxation as a result of severe personal exposure to illness or job loss due to the pandemic. • Support for a temporary levy seems relatively insensitive to variation in labels for such levy, with a marginally statistically significant preference for the term “COVID-19 recovery contribution.” The extent to which personal experiences can affect people’s attitudes toward public policies in general and preferences regarding redistribution in particular has been debated by economists, political scientists, and psychologists and is an area of active research in these fields. Some empirical studies argue that such attitudes in adulthood are largely shaped by a person’s immutable c (...truncated)