Tax-Rate Biases in Tax Decisions: Experimental Evidence

51 Pages Posted: 29 Feb 2016 Last revised: 7 Mar 2022

See all articles by Harald Amberger

Harald Amberger

Vienna University of Economics and Business

Eva Eberhartinger

Vienna University of Economics and Business

Matthias Kasper

University of Vienna; Tulane University

Date Written: March 1, 2022

Abstract

This study investigates biases in tax decisions. In a series of four laboratory experiments with 303 students and 62 tax professionals, we document a systematic tax-rate bias in decisions under time constraints. Specifically, decision-makers overestimate the relevance of less complex tax-rate information compared to more complex tax-base information. This behavior leads to suboptimal tax decisions. We also find that decision-making, on average, is unaffected by professional experience: students and tax professionals are similarly prone to tax-rate bias. However, senior tax professionals are more rationally inattentive. These decision-makers are less likely to exhibit a tax-rate bias when exhibiting such bias is relatively costly. Overall, our findings suggest that resource constraints impede the use of complex tax-base information, which results in suboptimal tax decisions. Interviews with senior tax professionals indicate potential for tax-rate biases in real-world tax decisions and thereby provide directions for future research.

Keywords: heuristics, decision bias, tax decisions, tax planning, rational inattention

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

Suggested Citation

Amberger, Harald Johannes and Eberhartinger, Eva and Kasper, Matthias, Tax-Rate Biases in Tax Decisions: Experimental Evidence (March 1, 2022). Journal of the American Taxation Association, Forthcoming, 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

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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