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

Amberger, Harald and Eberhartinger, Eva and Kasper, Helmut (2016) Tax-Rate Biases in Tax-Planning Decisions: Experimental Evidence. WU International Taxation Research Paper Series, 2016-01. WU Vienna University of Economics and Business, Universität Wien, Vienna.

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Abstract

Recent empirical findings suggest that firms might not always engage in economically optimal tax planning. We conduct a series of four laboratory experiments with 223 students and 62 tax professionals to examine whether decision biases offer a behavioral explanation for tax outcomes. We find that individuals overestimate the importance of tax rates relative to the tax base when facing time pressure in tax-planning decisions. This systematic decision bias results in suboptimal choices. In line with the theory of rational inattention, we observe that increasing tax-burden differences between two tax-planning strategies weakly mitigate the decision bias. However, tax-planning behavior is unaffected by the level of experience: students and highly experienced tax professionals are similarly prone to biased decision-making. Overall, our findings suggest that overestimating the implications of salient tax-rate information can cause decision biases and contribute to heterogeneity in tax outcomes.

Item Type: Paper
Additional Information: Editors: Eva Eberhartinger, Michael Lang, Rupert Sausgruber and Martin Zagler (Vienna University of Economics and Business), and Erich Kirchler (University of Vienna).
Keywords: heuristics, decision bias, salience, tax-rate information, rational inattention
Classification Codes: JEL C91, D03, H32, K34, M21, M41
Depositing User: ePub Administrator
Date Deposited: 01 Mar 2016 12:12
Last Modified: 18 Feb 2019 09:35
FIDES Link: https://bach.wu.ac.at/d/research/results/79814/
URI: http://epub.wu.ac.at/id/eprint/4897

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