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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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.

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 11:12
Last Modified: 31 Oct 2019 14:10


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