In a previous blog post, I speculated that contrary to media portrayals, many Americans actually like to pay their income taxes. The media often confuses people’s dislike of the process of paying taxes with an aversion to paying taxes. These are two different things. I argued that many Americans see paying income taxes as a civic duty and a moral obligation. It increases their pride, and makes them feel they are part of something bigger and they are contributing to the worthwhile enterprise of nation building. I titled that blog post “Why Do So Many Americans Actually Like Paying Taxes?”
Well, according to research, it turns out that people not only like paying taxes, but paying taxes actually makes them happier. Let’s look at the evidence.
In a 2007 study, economists William Harbaugh and Daniel Burghart and psychologist Ulrich Mayr studied the brain activity of 19 women while they played an economic game. Each woman was each given $100 and they could give some of the money ($15, $30 or $45) to a food bank. In one study condition, they didn’t have a choice. They were forced to give the specified amount to the food bank, just like paying tax. In another condition, however, they could choose whether to give anything, and if yes, how much money to give. There were multiple trials so the authors could study the same person’s brain activity under both forced giving and voluntary giving conditions.
The authors found that even when these women were forced to give, there was increased activation in the ventral striatum area of the brain which is known to process concrete rewards such as money, food, and drugs. While the effects on these rewards processing areas were higher if the individual had freedom, even tax-like payments generated rewards-related brain activity. This has got to be one of the most interesting and counter-intuitive studies I have ever read. The authors described their finding like this:
“The fact that mandatory transfers to a charity elicit activity in reward-related areas suggests that even mandatory taxation can produce satisfaction for taxpayers.”
Who knew? Where your brain is concerned, paying your income taxes is like winning the lottery.
In a 2011 paper, Italian economists Diego Lubian and Luca Zarri studied the fiscal morality of Italians and how it affected their happiness. Using data from a survey of 2,000 Italian households conducted in 2004, the authors calculated the “tax morale” of each respondent. They measured tax morale through responses to such items as “Paying taxes is one of the basic duties of citizenship” and “It is right to pay taxes because it helps the weak.” They measured the person’s happiness (a.k.a. subjective well-being) using the item, “Looking at every aspect of your life, how happy would you say you are?”
The authors found a strong association between tax morale and happiness after controlling for a bunch of factors including demographic characteristics such as age, income, and marital status, plus political orientation. Their key results was that an increase of one standard deviation in the person’s tax morale was associated with an increase in their stated happiness by half a standard deviation. We have to be careful with the “correlation not causation” issue here. All variables were from the same survey, so they couldn’t pry apart which variable affected which one. Still, not a bad effect for paying taxes, that many people view as worse than cleaning toilets!
I feel it’s important to point out that this study is not one-off. Other studies have shown similar results. A study conducted by a group of economists used a large dataset of panel data from Germans spanning 1985 to 2010, and reached the same conclusion. Another study, also conducted with German citizens, and this time distinguishing former East Germans (who were experienced with a communist regime) from those who lived in East Germany, found that former East Germans “tend to be relatively more happy to pay taxes.”
And finally, those who evade taxes are affected adversely. In a study of citizens of 14 Eastern and Central European countries, political scientists Ada Ferrer-i-Carbonell and Klarita Gërxhani found that those who evaded taxes reported a significantly lower level of subjective well-being (or happiness).
Lubian and Zarri’s conclusion about the tax – happiness relationship is heart-warming:
“Our results suggest that people pay taxes also because they like it: due to a sense of moral obligation, they feel intrinsically motivated to do it and this generates positive hedonic effects. As Gintis et al. (2008) observe, “Because of our nature as moral beings, humans take pleasure in acting ethically and are pained when acting unethically”(p.1).”
Well, in this season where many of us are on the cusp of paying our taxes, or have just done so, if this is not a feel good quote, I don’t know what is. It lightens the gloom from our lighter wallets and skinnier bank accounts. After you have filed your income tax refund, please be sure to take a few moments and bask in the warm glow of happiness that you should be feeling for having done something moral and worthwhile.
I teach pricing and marketing to MBA students at Rice University. My forthcoming book is How to Make Good Pricing Decisions: A Guide for Managers and Entrepreneurs. You can find more information about me on my website or follow me on LinkedIn, Facebook, or Twitter @ud.