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The ‘warm glow’ effect: Taxpayers don’t always mind forking over their cash

It's never a good feeling when opening up your hard-earned paycheque to find that a such a large portion of your salary is going straight into the government's bank account. However, according to a report in the Journal of Economic Psychology, people don't actually hate paying taxes as much as you might think.

"People would prefer to keep a dollar than pay it in tax," reads the the report, "but paying it in tax is not equivalent to throwing the money away."

In an interview with Miller-McCune, the lead author Iwan Djanali, an MBA student at Harvard University, says that taxpayers get a soft utility, otherwise known as a "warm glow" from paying taxes -- meaning, even though you're not getting anything tangible from paying them, you feel good knowing that your money is helping others.

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The report is based on the "tax affinity hypothesis," which the researchers tested by conducting an experiment with 66 undergraduate student volunteers, reports Miller-McCune. The students were paid to perform the relatively simple, if not mind-numbing, task of shading small circles on a page, and they were paid a rate per circle that increased with each five-minute round. On the low-paying rounds, the students weren't taxed at all and on the higher-paying rounds, they were taxed at a rate that ended up cancelling out the extra rate of pay.

Prior to beginning the taxed rounds, students read a statement explaining the tax money would be used to fund public services and infrastructures, and to redistribute income from the rich to the poor.

Surprising as it may seem, the researchers found that the majority of students worked significantly harder in the presence of tax, reports Miller-McCune -- except for the economics majors, of course, who might have come to believe in their first year classes that they get zero utility from paying taxes.

When the students were asked if they worked harder in the taxed rounds, less than a third said yes, even though the majority did, in fact, work harder. And of the ones who answered yes, their reasoning proved the hypothesis to be correct.

"The added incentive of knowing that some money would go to a good cause influenced them to work harder," reads the report.

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The researchers insist that their findings, while definitely of general interest, also have practical implications for policy-makers.

"One of the biggest issues in political debates around tax reform is whether higher taxes are a disincentive to work," Djanali tells Miller-McCune. "The argument is when you tax people so high, they're less willing to work. What we're saying is, yes, it would reduce incentive to work. But the reduction will not be as large as you might think, because people get some utility out of paying taxes. So this could have an impact on policy discussions."

They also argue that rather than attempting to disguise taxes by incorporating them into the prices of products, it's better to make taxes more visible so people know where their money is going. After all, you can't get that alleged "warm glow" if the taxes are hidden.

Do you ever feel good about paying taxes? Would you rather know what they are for or have them be hidden from you?

More interested in gardening this weekend rather than doing your taxes? Check out the video below showing tips for speeding weed removal.