Are More Choices Better? An Experimental Investigation of the Effectiveness of Multiple Tax Incentives

Posted: 3 Mar 2014

See all articles by Donna Bobek

Donna Bobek

University of South Carolina

Jason Chen

University of San Diego

Amy M. Hageman

Kansas State University

Yu Tian

University of Central Florida - Kenneth G. Dixon School of Accounting

Date Written: February 25, 2014

Abstract

This study investigates the role of choice complexity on the utilization of tax incentives. The current U.S. federal income tax system is rife with complexity (National Taxpayer Advocate, 2012). However, there is little empirical evidence on how this complexity impacts the effectiveness of tax incentives or more specifically whether having multiple incentives targeting the same behavior influences taxpayers’ decisions. We extend choice complexity literature from psychology (e.g., Greifeneder et al. 2010) by investigating whether increasing the number of incentive options affects the likelihood that an individual will (1) engage in the incentivized behavior, (2) and if so, take advantage of the incentive and (3) make the optimal choice of incentives. Based on results from two experiments with 134 participants, we find that having a higher number of incentive choices (high choice complexity) does not increase the likelihood that participants will engage in the incentivized behavior or take advantage of the incentives offered. Instead, a higher number of incentive choices increases the chance of failing to choose the optimal incentive and increases the likelihood of making an error in determining the monetary benefit of the incentive that is chosen. We conclude that having many incentive choices does not improve the likelihood of achieving the policy objective - and instead may have negative consequences on taxpayer decisions and policy outcomes.

Suggested Citation

Bobek, Donna and Chen, Jason and Hageman, Amy M. and Tian, Yu, Are More Choices Better? An Experimental Investigation of the Effectiveness of Multiple Tax Incentives (February 25, 2014). 2014 JATA Conference. Available at SSRN: https://ssrn.com/abstract=2401149

Donna Bobek

University of South Carolina ( email )

1041 Greene Street
Columbia, SC 29036
United States

Jason Chen

University of San Diego ( email )

5998 Alcala Park
San Diego, CA 92110-2492
United States

Amy M. Hageman (Contact Author)

Kansas State University ( email )

Manhattan, KS 66506-4001
United States

Yu Tian

University of Central Florida - Kenneth G. Dixon School of Accounting ( email )

University of Central Florida
P.O. Box 161400
Orlando, FL 32816-1400
United States
(407) 823-2966 (Phone)
(407) 823-3881 (Fax)

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