Taxpayers face complex tax systems, which many struggle to understand while others strive to exploit. We characterize optimal tax rates and taxpayer education when heterogeneous individuals have an incomplete understanding of the tax system. The analysis shows how learning about tax minimization strategies is isomorphic to learning about tax rates. In both cases, the government faces a trade-off: Educating taxpayers allows them to better optimize, but affects government revenue. The optimal amount of taxpayer education and redistribution are both characterized by aggregate sufficient statistics, which do not require information about how biases or behavioral responses vary across decision margins.

Ashley Craig is a Senior Lecturer in Economics at the Research School of Economics at the Australian National University (ANU), and a John Mitchell Fellow. He is also affiliated with the Office of Tax Policy Research at the University of Michigan, the Institute of Labor Economics and the ANU Tax & Transfer Policy Institute. Ashley’s research spans public economics and labor economics, with a particular focus on human capital investment, taxation, and inequality. Prior to joining ANU, Ashley was an Assistant Professor at the University of Michigan Department of Economics. He received his PhD in Economics from Harvard University in May 2019, and his undergraduate degree is from the University of Sydney. Ashley previously worked as an economist at the Reserve Bank of Australia.