Behavioral Responses to Tax Salience : Evidence from Tanzania : An Empirical Analysis of the Effect of Tax Salience on Mobile Money Transactions

Abstract

A central assumption in public economics is that individuals optimize fully to tax policies, meaning they respond to tax changes similarly to price changes. However, a growing body of evidence in the field of tax salience suggests that individuals optimize imperfectly to the available information due to inattention. Our thesis contributes to the field of tax salience by empirically investigating whether individuals optimize fully to taxes. We analyze the effect of salience on behavioral responses to taxes and fees on mobile money transactions in Tanzania. In February 2023, we collected primary data through a laboratory-in-the-field experiment in Dar es Salaam where we exploited the attention to the heavily disputed Electronic Money Transaction Levy. Using a willingness to pay elicitation method, we provide evidence that increasing the salience of taxes and fees of mobile money transactions reduces the willingness to pay for using mobile money services. The results provide support for the salience theory and suggest that the salience of a tax has policy implications. To our knowledge, we are the first to estimate a causal effect of salience on taxes levied on mobile transactions.