Tax-Rate Biases in Tax Decisions: Experimental Evidence

50 Pages Posted: 29 Feb 2016 Last revised: 8 May 2020

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: May 6, 2020

Abstract

This paper investigates how decision biases affect individuals’ tax decisions. We conduct four laboratory experiments with 303 students and 62 experienced tax professionals and find a systematic tax-rate bias in decisions under time constraints. More specifically, decision makers overestimate the relevance of less complex tax-rate information compared to more complex tax-base information, leading to 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, we find that tax decisions 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 bias, salience, tax-rate information, 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 (May 6, 2020). 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

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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