Happy Taxpayers: How Paying Taxes Can Make People Happy

Abstract

Past research has shown a link between taxation and higher well-being, but no research so far has revealed a mechanism or established a causal direction. While taxation can benefit individuals through providing better quality public goods, this line of research suggests that taxation may also benefit individuals by strengthening collective identification with other taxpayers. In three studies, I show that when taxation is perceived as a form of prosocial spending rather than personal spending, taxpayers increase their group identification with the other t ax beneficiaries, which in turn results in greater happiness and life satisfaction. In Study 1, I established a link between willingness to pay taxes to help others and well-being across time and nations. I examined this by analyzing data from the World Values Survey (WVS). Across 74 nations over 17 years, increase in tax to prevent pollution was positively linked to higher happiness and life satisfaction (γ = .055, p < 0.001 & γ = .195, p < 0.001, respectively). Likewise, across 19 rich nations, willingness to pay higher taxes to increase their country’s foreign aid to poor countries was associated with higher happiness and life satisfaction (γ = .055, p < 0.001 & γ = .186, p < 0.001, respectively). In Study 2, I replicated the link between willingness to pay taxes for prosocial purposes and subjective well-being with an American student sample and explored whether perceived social impact—the extent to which people feel their taxes benefit their society—mediates this relationship. The results of the bootstrapping analysis revealed a significant indirect effect of prosocial tax on happiness and life satisfaction via social impact, b =.097, 95% CI = [.0419; .1693] and b =.114, 95% CI = [.0544; .1894], respectively. Finally, in Study 3, I manipulated whether taxes were perceived as either a personal or a prosocial benefit or neither and tested whether benefiting other members of one’s own group (students from the University of Kansas) in the prosocial tax condition encourages stronger identification with other KU students, which in turn, improves happiness and life satisfaction. The results of the bootstrapping analysis confirmed a significant indirect effect of prosocial tax on current state of happiness and life satisfaction via increased KU identification, b =.329, 95% CI = [.0653; .7959] and b =.370, 95% CI = [.0862; .8330], respectively. The implications for tax policies are discussed.