The Biased Effect of Aggregated and Disaggregated Income Taxation on Investment Decisions

Journal of Institutional and Theoretical Economics, Vol. 168, Issue 3, 519-546

Posted: 14 May 2014

See all articles by Martin Fochmann

Martin Fochmann

Free University of Berlin; University of Cologne

Dirk Kiesewetter

University of Würzburg

Abdolkarim Sadrieh

University of Magdeburg

Date Written: May 12, 2014

Abstract

In a laboratory experiment that allows us to vary the taxation method while keeping the financial outcomes constant, we find clear evidence that aggregated income taxation (comparable to profit taxation) with complete loss deduction induces a sustained bias towards more risky investment decisions, while disaggregated income taxation (comparable to a transaction taxation with loss offset) does not. We suggest that this bias may be exploited to increase the volume of private investments by choosing aggregated income taxation if investors are (too) risk-averse, and to decrease the volume and the risk by choosing disaggregated income taxation if investors are (too) risk-seeking.

Keywords: tax perception, risk-taking behavior, distorting taxation

JEL Classification: C91, D14, H24

Suggested Citation

Fochmann, Martin and Kiesewetter, Dirk and Sadrieh, Abdolkarim, The Biased Effect of Aggregated and Disaggregated Income Taxation on Investment Decisions (May 12, 2014). Journal of Institutional and Theoretical Economics, Vol. 168, Issue 3, 519-546. Available at SSRN: https://ssrn.com/abstract=2435948

Martin Fochmann (Contact Author)

Free University of Berlin ( email )

Thielallee 73
Accounting and Taxation
Berlin, 14195
Germany

University of Cologne ( email )

Albertus-Magnus-Platz
Behavioral Accounting/Taxation/Finance
Cologne, 50923
Germany

HOME PAGE: http://www.taxation.uni-koeln.de/de/team/prof-dr-martin-fochmann/

Dirk Kiesewetter

University of Würzburg ( email )

Sanderring 2
Würzburg, D-97070
Germany

Abdolkarim Sadrieh

University of Magdeburg ( email )

Faculty of Economics and Management
Postbox 4120
39016 Magdeburg
Germany

HOME PAGE: http://www.ww.uni-magdeburg.de

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