Biases in Tax Decisions

60 Pages Posted: 29 Feb 2016 Last revised: 9 Apr 2021

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: April 2021

Abstract

We conduct a series of four laboratory experiments and interviews with senior tax professionals to study biases in tax decisions. In our experiments with 303 students and 62 experienced tax professionals, we find a systematic tax-rate bias in decisions under time constraints. Specifically, decision-makers overestimate the relevance of less complex tax-rate information compared to more complex tax-base information. This behavior leads to suboptimal decision-making. Moreover, we find that decision-making is unaffected by professional experience: students and tax professionals are similarly prone to tax-rate bias. Yet, tax professionals in senior positions are more rationally inattentive. These decision-makers are less likely to exhibit a tax-rate bias when exhibiting such bias is relatively costly. In-depth interviews with senior tax professionals corroborate the external validity of these results. Overall, our findings suggest that resource constraints impede the use of complex information, which results in suboptimal tax decisions.

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, Biases in Tax Decisions (April 2021). 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

Universit├Ątsstra├če 7
Vienna, Vienna 1010
Austria

Tulane University ( email )

New Orleans, LA 70118
United States

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