– The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies through research that is nonpartisan, evidence-based and subject to definitive expert review.
CANADA – The public’s knowledge gap on taxes leads to higher rates of tax avoidance, undermines trust in the government, and causes lower use of social programs, according to a new report from the C.D. Howe Institute.
The report entitled “The Knowledge Deficit about Taxes: Who It Affects and What to Do About It“, by Antoine Genest-Grégoire, Luc Godbout, and Jean-Herman Guay, surveys Quebecers on their “tax literacy” and offers practical advice on how to close the knowledge gap.
“While the survey was conducted in Quebec, the lessons learned can be applied across the country,” remarked Genest-Grégoire.
The authors measured the knowledge and skills of citizens concerning fiscal matters, including direct and indirect taxation, as well as social transfers.
The results found three main characteristics that best predict tax literacy, namely age, family income level, and education level. Older and more educated individuals were found to have higher knowledge of the tax system, while lower income groups had less.
Those who did their own taxes rather than having a professional do it for them generally had a better grasp on taxes. The study also finds that women seem to consistently underestimate their knowledge of tax.
This knowledge gap lessens take-up of government social programming, particularly among low-income earners. Lack of knowledge is also associated with lower trust levels in the tax system, which in turn leads to higher rates of tax evasion or avoidance. This can raise the cost of taxation for everyone.
The authors make a number of recommendations on how governments can help create an overall higher understanding of taxes.
- Publish more information about the situation of seniors and programs that are targeted to them;
- Make more data on the use of public programs and their intended recipients available for research;
- Offer better education initiatives, such as changes in school curriculums, employer-provided ongoing education, or public education campaigns; and
- Establish auto-enrollment in social programs to increase participation.
The report concludes, “Policies that use the tax administrative apparatus as a delivery system cannot reach their full potential if citizens don’t understand how taxes work in general and how they are affected specifically.”
