Does the perception of benefit fraud shape tax attitudesin Europe?

Abstract

After the negative effect of the recent financial crisis on public finances in many countries, it is of agreat interest to study attitudes towards taxation to identify effective policies to enhance public support fortaxation and welfare programs. In this paper, we analyze empirically people’s attitudes towards taxation inEuropean countries. In particular, we test whether the perception about benefit fraud may produce differenteffects on preferences over the size of the welfare state along the income distribution. Moreover, we testif contextual variables are relatively more relevant than individual characteristics in determining attitudestowards taxation. Using different data sources for many EU countries in 2008, we contrast those hypothesestaking advantage of multilevel techniques. Our results suggest that policies targeting the deterrence of benefitfraud such as higher penalties and more frequent benefit investigations, increase the high earners’ willingnessto pay taxes and then the size of the welfare state. We also find that contextual characteristics explain a largervariance of attitudes toward taxation than individual characteristics, suggesting that the same policy for allUE countries might be not a good strategy.