2023 FALL SEMINAR SERIES Seminar: Michael Best Columbia University

Inequity in public policy generates resentment among citizens. We estimate the impact that inequity in the tax code has on voluntary tax compliance in the context of the property tax in Manaus, Brazil. Using administrative data on the universe of taxpayers and a novel quasi-experimental design leveraging geographic discontinuities in tax liabilities and a large reform, we find that the elasticity of compliance with respect to inequity is 0.14--0.18, slightly larger than the elasticity with respect to a taxpayer's own liability. A simple optimal taxation model draws out the implications of these responses for tax design, showing that compliance responses to horizontal inequity significantly dampen the optimal progressivity of property taxes.