Tax-Rate Biases in Tax-Planning Decisions: Experimental Evidence

51 Pages Posted: 29 Feb 2016 Last revised: 26 Oct 2019

See all articles by Harald Amberger

Harald Amberger

Vienna University of Economics and Business; Dartmouth College - Tuck School of Business

Eva Eberhartinger

Vienna University of Economics and Business

Matthias Kasper

University of Vienna; Tulane University

Date Written: 2016

Abstract

This paper investigates whether decision biases might reduce the quality of corporate taxplanning decisions. We conduct four laboratory experiments with 223 students and 62 tax professionals and show that time pressure induces a systematic tax-rate bias in tax-planning choices. Decision makers overestimate the relevance of less complex tax-rate information compared to more complex tax-base information. This results in suboptimal decision-making. We also find support for the theory of rational inattention as increasing the size of the tax-base effect mitigates the decision bias. However, tax-planning choices are unaffected by participants’ professional experience: students and highly experienced tax professionals are similarly prone to biased decision-making. Overall, our findings suggest that time constraints impede the use of complex information which can result in suboptimal tax planning.

Keywords: heuristics, decision biases, tax-rate information, rational inattention, information complexity

JEL Classification: C91, D03, H32, K34, M21, M41

Suggested Citation

Amberger, Harald Johannes and Eberhartinger, Eva and Kasper, Matthias, Tax-Rate Biases in Tax-Planning Decisions: Experimental Evidence (2016). WU International Taxation Research Paper Series No. 2016-01. Available at SSRN: https://ssrn.com/abstract=2727680 or http://dx.doi.org/10.2139/ssrn.2727680

Harald Johannes Amberger (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Eva Eberhartinger

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna 1020
Austria

HOME PAGE: http://www.wu.ac.at

Matthias Kasper

University of Vienna

Universitätsstraße 7
Vienna, Vienna 1010
Austria

Tulane University ( email )

New Orleans, LA 70118
United States

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