Thursday, July 28, 2011
This paper considers whether knowledge of the tax law is socially desirable. Unlike other laws, which most often attempt to channel behavior, revenue raising taxes attempt to avoid changing behavior, so it is not obvious whether or when knowledge of the tax law is desirable. I argue that whether knowledge of the tax law is desirable depends on three factors: expectations about the tax in the absence of knowledge, the type of tax, and the quality of the tax. I then apply this to various policy decisions where knowledge of the tax law is a key variable, including the regulation of tax advisors, hidden taxes (such phase-outs of exemptions), and whether individual have the socially optimal incentive to seek knowledge of the tax law.