Mental Accounting of Self-Employed Taxpayers: On the Mental Segregation of the Net Income and the Tax Due

39 Pages Posted: 17 Jul 2013

See all articles by Stephan Muehlbacher

Stephan Muehlbacher

University of Vienna - Department of Psychology

Erich Kirchler

University of Vienna - Faculty of Psychology

Date Written: July 17, 2013

Abstract

Mental accounting practices of self-employed taxpayers are investigated in two studies. Interviews (N=30) revealed that perceptions of the tax due differ widely. While a majority seems to mentally segregate the tax component from their net income, others claim ownership of the gross income as a whole and consequently experience a loss when paying taxes. A survey (N=172) shows that mental segregation is associated with age, income, and number of employees, and is further related to attitudes towards taxes and self-reported compliance. It is concluded that especially inexperienced self-employed should be trained in favorable mental tax accounting practices to foster their voluntary compliance.

Keywords: mental accounting, segregation, tax compliance, tax evasion, voluntary compliance

JEL Classification: D81, H24, H26, M13

Suggested Citation

Muehlbacher, Stephan and Kirchler, Erich, Mental Accounting of Self-Employed Taxpayers: On the Mental Segregation of the Net Income and the Tax Due (July 17, 2013). WU International Taxation Research Paper Series No. 2013 - 04, Available at SSRN: https://ssrn.com/abstract=2293848 or http://dx.doi.org/10.2139/ssrn.2293848

Stephan Muehlbacher (Contact Author)

University of Vienna - Department of Psychology ( email )

Liebigg. 5
Vienna, 1010
Austria

Erich Kirchler

University of Vienna - Faculty of Psychology ( email )

Universitaetsstrasse 7
Vienna, A-1010
Austria
+43 1 42 7747332 (Phone)
+43 1 42 7747339 (Fax)

HOME PAGE: http://homepage.univie.ac.at/erich.kirchler

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