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

Abstract

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.

The Tax Complexity Index – A Survey-Based Country Measure of Tax Code and Framework Complexity

“…While details are usually measured by counting the number of regulations, paragraphs or words (Clotfelter, 1983;Karlinsky, 1981;Weber, 2015;Weinstein, 5 See Slemrod (1989), McCaffery (1990), Cooper (1993), , Diller et al (2013) or Hoppe et al (2018). 6 An overview of research on perception and misperception of taxes including tax complexity and its implications for decision-making is provided by Blaufus et al (2020). 7 A literature review on the measurement of tax (bureaucracy) costs is provided by Eichfelder (2011).…”

The Lock-In Effects of Part-Time Unemployment Benefits

“…Our contribution also adds to the literature devoted to the analysis of the consequences of information provision in a variety of economic applications, including job search (Altmann et al (2018), Belot et al (2018), Crépon et al (2018), Darling et al (2016)), labor supply and taxes (Chetty and Saez (2013), Blaufus et al (2020)), the take-up of social benefits (Currie (2006), Bhargava and Manoli (2015), Finkelstein and Notowidigdo (2019)), unemployment benefits (Blank and Card (1991), Fontaine and Ketteman (2019)), housing allowances (Engström et al (2015)), retirement savings plans (Dolls et al (2019)) and training programs (Crépon et al (2018). From this perspective, our paper is the first to provide information about part-time unemployment benefits.…”

Effect of Behavioral Biases on Investor Preferences of Tax Saving Instruments

“…Researches have confirmed that taxes significantly influence decision making, i.e., decisions for investment and financing (Blaufus & Chirvi, 2020). Behavioral response to an investment provides insights into perception of the individuals.…”