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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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Contrary to standard economic theory, recent empirical findings suggest that firms do not always engage in economically optimal tax planning. We conduct a laboratory experiment and find robust evidence that decision biases offer a behavioral explanation for suboptimal tax planning. When facing time pressure in an intra-group cross-border financing decision, subjects apply heuristics based on the salience of statutory tax rates. This stirs decision makers to underestimate the effects of tax-base changes and causes economically suboptimal decisions. We find that tax-planning behavior is largely unaffected by subjects' work experience or education in accounting, taxation, and/or finance. However, we observe an overconfidence bias in subjects with work experience. In line with the theory of rational inattention, an increasing tax-burden difference between two tax-planning strategies weakly mitigates the use of heuristics. Taken together, our findings suggest that tax-information salience drives tax-planning decisions. This effect might cause decision biases and contribute to the undersheltering puzzle. (authors' abstract)

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, tax-information salience, rational inattention, tax planning, intra-group financing
Classification Codes: JEL C91, D03, H32, K34, M21, M41
Depositing User: ePub Administrator
Date Deposited: 01 Mar 2016 12:12
Last Modified: 04 May 2018 07:50
URI: http://epub.wu.ac.at/id/eprint/4897


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