Horizontal Equity of Taxation: Citizen Beliefs and Policy Preferences

Horizontal inequity occurs when employees and self-employed workers with the same income end up with different effective tax burdens, due to the difficulty of enforcing taxes on the self-employed. Based on detailed micro-tax simulation models integrated with household surveys in 25 developing countries, this paper shows that tax systems incur large horizontal inequities in practice, and reforms that improve vertical equity worsen horizontal equity by a comparable amount. In-person and online surveys across multiple countries reveal widespread concern about horizontal equity. Randomized information treatments heighten this concern but do not shift tax preferences toward addressing horizontal inequity.