TAX COMPLEXITY AND FISCAL ILLUSION

By using the Hirschman-Herfindahl index (HHC) the traditional approach to the tax complexity hypothesis introduces a restriction into the fi scal illusion model which has no theoretical foundation. We analyse th e existing framework of the tax complexity hypothesis in detail and pr opose to capture this complexity through a Hannah and Kay index. We ex tend the theoretical framework by considering the expected return on i nvestment in information. The empirical tests show that the HHC overes timates the importance of size inequalities between different taxes, w hile underestimating the impact of the number of taxes as a source of informational costs. The expected revenue hypothesis is not supported.