Can Tax Rate Increases Foster Investment Under Entry and Exit Flexibility? - Insights from an Economic Experiment

Fahr, René; Janssen, Elmar; Sureth, Caren

doi:10.2139/ssrn.2442721

Cited by 3 publications

(3 citation statements)

References 56 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Our model theoretically describes effects found in laboratory experiments as the mentally overestimation of losses or loss offset opportunities in Fochmann, Kiesewetter and Sadrieh (2012) or Fahr, Janssen and Sureth (2014) and Amberger, Eberhartinger and Kasper (2016). Thus, we provide a descriptive model for the yet unexplained experimental evidence for tax-induced biased perception of risky investments.…”

Section: Introductionmentioning

confidence: 89%

Tax Loss Offset Restrictions and Biased Perception of Risky Investments

Mehrmann

Sureth-Sloane

2017

SSRN Journal

View full text Add to dashboard Cite

Abstract:We investigate how tax loss offset restrictions affect an investor's evaluation of risky investments under bounded rationality. We analytically identify behavioral tax effects for different levels of loss offset restrictions, tax rate and prospect theoretical biases (loss aversion, probability weighting and reference dependence) and find tax loss offset restrictions significantly bias investor perception, even more heavily than the tax rate. If loss offset restrictions are rather generous, investors are very loss averse or assign a huge weight to loss probabilities, taxation is likely to increase the preference value of risky investments (behavioral tax paradox). Surprisingly, the identified significant perception biases of tax loss offset restrictions occur under both high and low tax rates and thus are relatively insensitive to tax rate changes. Finally, we identify huge differences in behavioral tax effects across countries indicating that tax loss offset restrictions crucially determine the perceived tax quality of a country for risky investments. Our analysis is relevant for policy makers discussing future tax reforms as well as for investors assessing risky investment opportunities.

show abstract

Section: Introductionmentioning

confidence: 89%

Tax Loss Offset Restrictions and Biased Perception of Risky Investments

Mehrmann

Sureth-Sloane

2017

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…The framing of a tax reduction as a bonus instead of a tax rebate or as increase in monthly income instead of a reduction of the monthly tax burden affects spending behavior (e.g., Epley et al, 2006). Fahr et al (2014) find that the presence of an exit option seems to be irrelevant for (affects) investment timing in the case of an experienced tax rate decrease (increase). Mehrmann and Sureth-Sloane (2017) analytically show that tax loss offset restrictions significantly bias investor perception even more heavily than the tax rate.…”

Section: Prospect Theorymentioning

confidence: 99%

“…They find in an experiment that subjects entitled to claim a tax refund take significantly less risk than those who have to pay an additional tax. The influence of tax rate changes on the timing of risky investments as well as entry and exit flexibility is studied by Fahr et al (2014). An exit option seems irrelevant for investment timing in the case of an experienced tax rate decrease, but not in the case of a tax rate increase.…”

Section: Tax Misperception Investment Decisions and Risk-takingmentioning

confidence: 99%

Tax Misperception and its Effects on Decision Making – Literature Review and Behavioral Taxpayer Response Model

Blaufus

Chirvi

Huber

et al. 2020

European Accounting Review

View full text Add to dashboard Cite

Previous accounting research shows that taxes affect decision making by individuals and firms. Most studies assume that agents have an accurate perception regarding their tax burden. However, there is a growing body of literature analyzing whether taxes are indeed perceived correctly. We review 128 studies on the measurement of tax misperception and its behavioral implications. The review reveals that many taxpayers have substantial tax misperceptions that lead to biased decision making. We develop a Behavioral Taxpayer Response Model on the impact of provided tax information on tax perception. Besides individual traits, characteristics of the tax information and the decision environment determine the extent of tax misperception. We discuss opportunities for future research and methodological limitations. While there is much evidence on tax misperception at the individual level, we hardly find any research at the firm level. Little is known about the real effects of managers' tax misperception and on how tax information is strategically managed to impact stakeholders. This research gap is surprising as a large part of the accounting literature analyzes decision making and disclosure of firms. We recommend a mixed-method approach combining experiments, surveys, and archival data analyses to improve the knowledge on tax misperception and its consequences.

show abstract

Tax Misperception and Its Effects on Decision Making – a Literature Review

Blaufus

Chirvi²,

Huber³

et al. 2020

SSRN Journal

View full text Add to dashboard Cite

Previous accounting research shows that taxes affect decision making by individuals and firms. Most studies assume that agents have accurate perception regarding their tax burden. However, there is a growing body of literature analyzing whether taxes are indeed perceived correctly. We review 124 studies on the measurement of tax misperception and its behavioral implications. The review reveals that many taxpayers have substantial tax misperceptions that lead to biased decision making. We develop a Behavioral Taxpayer Response Model on the impact of provided tax information on tax perception. Besides individual traits, characteristics of the tax information and the decision environment determine the extent of tax misperception. We discuss opportunities for future research and methodological limitations. While there is much evidence on tax misperception at the individual level, we hardly find any research at the firm level. Little is known about the real effects of managers' tax misperception and on how tax information is strategically managed to impact stakeholders. This research gap is surprising as a large part of the accounting literature analyzes decision making and disclosure of firms. We recommend a mixed-method approach combining experiments, surveys, and archival data analyses to improve the knowledge on tax misperception and its consequences.

show abstract

Can Tax Rate Increases Foster Investment Under Entry and Exit Flexibility? - Insights from an Economic Experiment

Cited by 3 publications

References 56 publications

Tax Loss Offset Restrictions and Biased Perception of Risky Investments

Tax Loss Offset Restrictions and Biased Perception of Risky Investments

Tax Misperception and its Effects on Decision Making – Literature Review and Behavioral Taxpayer Response Model

Tax Misperception and Its Effects on Decision Making – a Literature Review

Contact Info

Product

Resources

About