Citizens’ preferences for taxation of internationally mobile corporations : evidence from Tanzania

Abstract

The legitimacy of the tax system is likely to be compromised in the absence of public support. This article presents evidence from a discrete choice experiment designed to elicit the tax preferences of ordinary citizens on how corporations should be taxed. We find that respondents prefer higher taxes on more internationally mobile companies, which is inconsistent with the prescriptions of optimal tax theory. Moreover, it is at odds with the tax policy in many countries, which may reduce political support for taxation among citizens. The experiment was conducted in Tanzania, making this result all the more striking as developing countries are particularly sensitive to location decisions of corporations. We also find that citizens favor higher taxes on foreign-owned companies compared to domestic ones and lower taxes on companies that have more local employees.