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. / Series: WU International Taxation Research Paper Series
| Identifer | oai:union.ndltd.org:VIENNA/oai:epub.wu-wien.ac.at:4897 |
| Date | January 2016 |
| Creators | Amberger, Harald, Eberhartinger, Eva, Kasper, Helmut |
| Publisher | WU Vienna University of Economics and Business, Universität Wien |
| Source Sets | Wirtschaftsuniversität Wien |
| Language | English |
| Detected Language | English |
| Type | Paper, NonPeerReviewed |
| Format | application/pdf |
| Relation | http://dx.doi.org/10.2139/ssrn.2727680, http://epub.wu.ac.at/4897/ |
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