Are Australians Under or Over Confident when it Comes to Tax Literacy, and Why Does it Matter?

Abstract

The concept of financial literacy and capability is seen as important in modern economies. An important part of financial capability is a person’s confidence in dealing with financial decisions. It has been argued that financial literacy should be extended to include knowledge and understanding of the tax system, given it can influence investment strategies and wealth outcomes. We examine how Australians’ confidence relates to their tax literacy. The findings suggest that lower confidence is more likely to relate to certain demographics. However, unlike other financial literacy measures, it appears that peoples’ tax confidence is more aligned to their actual understanding.

Keywords: Financial Literacy, Tax Literacy, Financial Capability, Confidence

JEL Classification: K34, H21, I22