Public Choice

, Volume 115, Issue 1–2, pp 217–240 | Cite as

Taxation and the Veil of Ignorance – A Real Effort Experiment on the Laffer Curve

  • Matthias Sutter
  • Hannelore Weck-Hannemann

Abstract

In this paper we address the role of theveil of ignorance on work incentives andtax rates in a two-person real effortexperiment. We find that effort levelsdecrease with a rise in tax rates. Taxrevenues peak at intermediate tax rates of50% to 65%, supporting the existence of aLaffer curve in taxation. Tax authoritiesdo not exploit their power to tax in full,which is compatible both with revenuemaximizing but also fair behavior. Behindthe veil of ignorance, subjects care morefor efficiency and restrict the power totax more than in case their position(taxpayer or tax authority) is fixed inadvance.

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Copyright information

© Kluwer Academic Publishers 2003

Authors and Affiliations

  • Matthias Sutter
    • 1
  • Hannelore Weck-Hannemann
    • 1
  1. 1.Institute of Public FinanceUniversity of InnsbruckInnsbruckAustria

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