The Effect of Tax Preparation Expenses for Employees: Evidence from Germany

47 Pages Posted: 1 Jan 2014 Last revised: 31 Jul 2017

See all articles by Kay Blaufus

Kay Blaufus

Leibniz Universität Hannover

Frank Hechtner

Friedrich-Alexander-Universität Erlangen-Nürnberg

Axel Möhlmann

Deutsche Bundesbank

Multiple version iconThere are 2 versions of this paper

Date Written: April 22, 2016


Using a panel of German income tax accounting data from taxpayers with no business income (employees), we find a negative relationship between tax preparation expenses and tax liabilities. However, preparation expenses are shown to exceed estimated tax savings. Specifically, one additional Euro spent on preparation yields an estimated tax savings of 72 cents in an OLS regression and 24 cents in a fixed effects regression. In addition, we observe substantial heterogeneity in tax savings among income groups, but even if we account for long-term tax savings, tax liability reductions exceed tax preparation expenses only for the highest income quintile. In all other income quintiles, average preparation expenses exceed the estimated tax and time savings. Based on these results, we also examine whether other specific benefits affect an individual's decision to purchase tax preparation services, and the results indicate the importance of the benefits of coping with complexity and reduced uncertainty. Overall, our findings illustrate that the current tax compliance process violates at least two of Adam Smith's principles of taxation, taxes are neither certain nor fair.

Keywords: response to taxation, tax advisors, tax return preparation, tax preparation expenses

JEL Classification: H24, H31

Suggested Citation

Blaufus, Kay and Hechtner, Frank and Möhlmann, Axel, The Effect of Tax Preparation Expenses for Employees: Evidence from Germany (April 22, 2016). Contemporary Accounting Research, Vol. 34, No. 1, 2017, Available at SSRN: or

Kay Blaufus (Contact Author)

Leibniz Universität Hannover ( email )

Institut für Betriebswirtschaftliche Steuerlehre
Koenigsworther Platz 1
Hannover, 30167

Frank Hechtner

Friedrich-Alexander-Universität Erlangen-Nürnberg ( email )

Lange Gasse 20
Nürnberg, 90403

Axel Möhlmann

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt, DE 60431


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