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This paper examines whether a perceived increase in tax audit aggressiveness is associated with lower tax planning effort and a higher quality of internal tax control frameworks. Using survey data on corporate tax functions from approximately 200 firms from different countries, contrary to expectations, we find that neither internal nor external resources devoted to tax planning are lower for firms that perceive an increase in tax audit aggressiveness. Nevertheless, for these firms, we find a positive association with the quality of their tax control framework and their investments in the reputation management and communication skills of their tax department staff. In line with this, we find that an increase in perceived audit aggressiveness is directly (indirectly) associated with an increase in resources allocated to the tax function “controversy and audit defense” (“risk management and governance”). In addition, our results show a positive relationship between the quality of the tax control framework and the need for comprehensive improvements in human capital and internal processes, suggesting that the tax control framework affects the firms' perceptions of their tax capabilities and drives organizational changes. Overall, these findings are in line with the rationale that an increase in audit aggressiveness changes the costs of compliance errors such that firms improve the quality of their tax control framework to reduce future errors. In contrast, it remains unclear whether tax audit aggressiveness actually changes tax planning behavior, as we find no negative association with the firms' investment in tax planning.

Using a survey of more than 18,000 taxpayers in North Rhine-Westphalia (Germany), we estimate the income tax compliance costs of German households and study the determinants of these costs. We find that taxpayers need between 9.13 and 10.23 hours and spend €106 to meet their income tax obligations. The average total burden is between €228 (lower bound estimate) and €321 (upper bound estimate). The aggregate cost burden ranges between 2.03 percent and 2.92 percent of the German income tax revenues of tax year 2015. Although these costs have decreased significantly over recent years (mainly for self-preparers without self-employment income), international comparisons illustrate that the German burden is still located in the upper middle. The five most important cost drivers that increase individual costs are the use of tax advice, the appeal procedure, income, return complexity, and education. We cannot confirm that e-filing reduces taxpayers’ compliance costs.

This study examines stock market responses to news on corporate tax strategies. Our dataset includes 176 tax news items regarding listed German firms over the period from 2003 to 2016. In contrast to previous research, we distinguish between news about corporate tax strategies that are legal (tax avoidance) and illegal (tax evasion). We show that stock market responses differ significantly between news items concerning legal and illegal activities. We find negative abnormal returns for tax evasion news, while we find no general effect for tax avoidance news. Moreover, we do not observe any evidence of average reputation or agency costs exceeding the positive effect of legal tax planning. However, we find positive stock price reactions to legal tax planning when firms’ tax risk is low. Our findings contribute to the ongoing debate among researchers, politicians, and corporate managers on the benefits and costs of corporate tax strategies and address the issue of morals in markets.

Governments have taken remarkable measures during the SARS-CoV-2 pandemic in their efforts to safeguard citizens’ health and the economy. As a consequence, public debts have reached unprecedented levels, which will require at some point higher taxes. Ensuring that citizens pay these taxes requires consideration of the many factors that will likely affect their tax compliance decisions. In this paper, we reflect from a behavioral economic perspective the impact of tax policy measures on the perception, evaluation, and behavior of citizens and derive considerations to devise appropriate tax policies to ensure compliance in the future. We start with speculations about citizens’ views of governmental restrictions and economic stimulus measures in response to the crisis, we apply these speculations to the acceptance and perceived effectiveness of policy measures on citizens’ tax compliance behaviors, and we finish with their likely impact on determinants of tax compliance. Building on the derived insights, we deduce a set of considerations to improve tax compliance – and to generate the necessary tax revenues to deal with the after-effects of SARS-CoV-2 when the pandemic is under control: communication, transparency and justification of measures, access to support, service provision, audits and penalties in case of free-riding, targeted audits, building social norms of cooperation, consideration of framing effects, development of plans and strategies for the future, and anticipation of hindsight biases.

This paper discusses tax implications of fair value accounting. We first provide an overview over existing tax systems in Europe and the United States and the use of fair value elements for tax purposes. We also discuss potential costs and benefits of implementing fair value taxation. Benefits of using fair value accounting for tax purposes, for example, comprise fewer distortions of investment decisions. However, there are also potential downsides of fair value based taxation. For example, tax payments of firms could become more counter-cyclical and firms might have to pay taxes on unrealized gains. Taken together, our paper provides an overview of costs and benefits of fair value taxation as well as potential avenues for future research.

We conduct a survey of German tax professionals (tax advisors and revenue agents) and laymen to examine whether tax experts more accurately forecast the outcomes of five real cases from the German Federal Fiscal Court. With an average of 2.39 correct predictions among experts and an average of 2.49 correct predictions among laymen, our results reveal no significant difference in forecasting accuracy between the two groups. Additionally, neither general nor task-specific tax expertise increases the experts’ forecasting accuracy. This unpredictability of tax court decisions indicates that accounting rules and taxpayer penalties that rely on accurate predictions of tax court decisions may need to be re-evaluated. Moreover, our results indicate the existence of two types of ‘advisor bias’. First, tax advisors exhibit a significantly higher level of overconfidence in comparison to other experts (i.e. revenue agents) and laymen. In particular, they believe that they correctly predict, on average, 1.52 m...

By taking explicit account of liability limitations, we analyse the influence of taxes on the simultaneous choice of organizational form and financing. In a two-state model for a single reporting period investors striving for maximisation of expected utility choose the organizational form (with or without liability limitation) in which they implement a given risky real investment and decide how they finance it (equity or debt). We demonstrate that liability limitations result in tax-relevant differences between organizational forms. Thus, for example, the tax bases differ in relation to the chosen liability-contingent debt capital compensations as well as to tax loss offset rules. Therefore, even in the event of identical tax rates, taxes can influence the decision regarding the organizational form.

This paper studies behavioral responses to taxes in financial markets. It is motivated by recent puzzling empirical evidence of taxable municipal bond yields significantly exceeding the level expected relative to tax exempt bonds. A behavioral explanation is a tax aversion bias, the phenomenon that people perceive an additional burden associated with tax payments. We conduct market experiments on the trading of differently taxed and labeled securities. The data show an initial overvaluation of tax payments that diminishes when subjects gain experience. The tax deduction of expenses is valued more than an equivalent tax exemption of earnings. We find that the persistence of the tax aversion bias critically depends on the quality of feedback. This suggests that tax aversion predominantly occurs in one-time, unfamiliar financial decisions and to a lesser extent in repetitive choices.

We analyze the compliance costs of individual taxpayers resulting from the German income tax (tax year 2007). Using survey data that have been raised between December 2008 and April 2009, we find evidence for a considerably higher cost burden of self-employed taxpayers. Taxable income and a higher education (university degree) are positively correlated with compliance costs, while the time effort of female taxpayers is significantly lower. By contrast, joint filing of married couples reduces the burden of tax compliance. The aggregate cost estimate of German income taxpayers amounts to €6 to €9 billion, respectively, 3.1 to 4.7 percent of the income tax revenue in 2007. This estimate is higher than latest projections in a number of other European countries like Spain and Sweden, but lower than estimates for the United States and Australia. © The Author(s) 2013.

Tax research mostly uses actual tax rates (“objective tax rates”) to analyze and explain tax effects on taxpayers’ decisions and tax distribution. In this study, we asked subjects to estimate how high their tax burden is, and to give their opinion if, or to what extent, they would consider this perceived tax rate as fair. We provide evidence that the perceived income tax rates significantly deviate from the objective tax rates for the majority of taxpayers. The degree of misperception can be partly explained by the individual’s level of education, income, and whether the individual included social security contribution in their income tax rate estimation. Comparing the perceived tax rate with the tax rate that is regarded as fair, we find that the individual’s level of education and age influence their estimate. Taking the results of Schmoelders (Das Irrationale in der offentlichen Finanzwirtschaft. Rowohlt, Hamburg, 1960) into account, we show that the income tax misperception as well as the relation between perceived and fair income tax rates is surprisingly stable over time. The main distinction is that there is no more difference in tax perception between self-employed and employed people nowadays.

In a controlled laboratory experiment, subjects had to fold letters in order to earn money. While the net income per letter was the same in the three treatments, the gross income varied and the tax rate was 0, 25, and 50 percent. Although work incentives should be the same in all treatments, subjects worked harder and longer when they were taxed. We conclude that this is because of a net wage illusion effect. The existence of this effect demonstrates that not only are the tax rate and the tax base of importance for work incentives, but the perception of a tax is also important.

In this paper, both a conjoint analysis and a lab experiment are conducted to analyze the influence of changes in the tax rate and the tax base on the perceived tax burden. Our results show that the majority of individuals do not make rational tax decisions based on the actual tax burden but rather use simple decision heuristics. This leads to an irrationally high impact of changes in nominal tax rates on the perceived tax burden. Taxpayers favor tax options that apply a lower tax rate on their gross income over a higher tax rate applied on their net income despite the lower actual tax burden of the latter option. This result suggests that politicians could combine increasing fiscal revenues and decreasing subjects’ tax perception. Furthermore, overestimation of tax rate changes increases considerably when information on tax rate is considered first (framing effect).

Obwohl die Schaffung eines verstandlicheren Steuerrechts ein verbreitetes Steuerreformziel ist, sind die Entscheidungswirkungen und Verteilungsfolgen nicht klar. Am Beispiel der betrieblichen Altersvorsorge untersuchen wir experimentell die Wirkungen auf die Zahlungsbereitschaft fur Steuerberatungsleistungen. Erwerbstatige hatten dabei die Aufgabe, die Vorteilhaftigkeit betrieblicher Altersvorsorgeplane in komplexen und einfachen Steuersystemen zu bestimmen. Im Experiment fuhrt ein verstandlicher geschriebenes Steuerrecht zu einer signifikanten Senkung der Nachfrage nach Steuerberatungsleistungen. Eine solche Steuervereinfachung wirkt allerdings nicht gleichmasig, sondern selektiv. Von der verbesserten Verstandlichkeit des Steuerrechts profitieren im Experiment nahezu ausschlieslich Personen mit hohem Bildungsstand.

Mit der Unternehmensteuerreform 2008/2009 wurde eine vollig neuartige Form der Zinsabzugsbeschrankung eingefuhrt. Greift die so genannte Zinsschranke, konnen Unternehmen ihre Zinsen nur noch in Abhangigkeit von der Ertragslage als Betriebsausgaben abziehen. Der Gesetzgeber versucht damit u. a. einer vermeintlich ubermasigen Fremdfinanzierung deutscher Unternehmen entgegenzuwirken. Die Regelung hat dabei sowohl im Schrifttum als auch in der Praxis zahlreiche Diskussionen hervorgerufen. In der folgenden Arbeit soll nun erstmals die Fragestellung, wie viele und welche Unternehmen uberhaupt von der Zinsschranke potenziell betroffen sein werden, beantwortet werden. Dabei soll insbesondere uberpruft werden, ob aus der Zinsschranke potenzielle Verzerrungen hinsichtlich der Bilanz- und Organisationsstruktur, der Rentabilitats-, Grosen- und Risikoklasse, der Liquiditat sowie der Branchenzugehorigkeit resultieren.

We theoretically and empirically analyze the influence of tax complexity on the employee’s decision concerning company pension plans. Our model also considers employer signaling and information intermediation by various actors. The main result of our empirical analysis is that if tax complexity is high, then only a small proportion of the study participants bases their decision on their after-tax return. This proportion increases significantly if tax complexity is low. However, even in a simple tax system, many people do not base their decisions on after-tax returns, but instead follow the advice of an independent product rating agency or a works council representative.

Der vorliegende Beitrag hat gezeigt, wie sich die Kosten einer Versorgungszusage uber eine pauschaldotierte Unterstutzungskasse bestimmen und durch gezielte Gestaltung der Zuwendungspolitik reduzieren lassen. Durch eine steuerliche Optimierung der Zuwendungen des Tragerunternehmens konnen teilweise erhebliche Kostenvorteile erreicht werden. Die bisherigen Aussagen zur systematischen steuerlichen Unvorteilhaftigkeit von Unterstutzungskassen gegenuber Direktzusagen werden dadurch relativiert.

Shareholders can decide if their corporation issues risky or risk-free debt. We identify tax systems in which the choice between risky and risk-free debt is not distorted by taxes. These credit default neutral tax systems make it possible to make capital structure decisions and firm valuations neglecting credit default risk, even after taxes. Thus credit default neutrality is a characteristic of a tax system that helps to reduce planning costs. Moreover, credit default neutrality is a necessary condition for financial neutrality of taxation. We find one class of credit default neutral taxes that preserves and another class that modifies the expected tax distribution between creditors and debtor firm. Finally, we show the influence of personal taxation on credit default neutrality.

Using a theoretical model for risky investment decisions, we study the effect of interest deductibility restrictions on the choice of organizational form. We analyze the two most widely used approaches: first, rules that limit the interest deductibility if the firm’s leverage exceeds a specific level, and second, rules that restrict the interest deduction if the interest expenses exceed a specific percentage of the firm’s earnings. Although these restrictions apply uniformly for partnerships and corporations in many countries, we find that they usually distort the choice of organizational form. We demonstrate that only leverage-based interest deductibility restrictions can in theory be modified to achieve organizational form neutrality. However, this requires a legal form dependent application or absence of dividend taxation and in any case a full loss offset which is in contrast to current law in many countries. If one considers corporate loss offset limitations, both types of interest deductibility restrictions always distort the choice of organizational form. Thus, the introduction of interest deductibility restrictions is actually in conflict with the legislators’ often declared aim to design tax systems that are neutral with respect to the choice of organizational form.

Previous research argues that the law expresses social values and could, therefore, influence individual behavior independently of enforcement and penalization. Using three laboratory experiments on tax avoidance and evasion, we study how legality affects individuals’ decisions. We find that, without any risk of negative financial consequences, the qualification of tax minimization as illegal versus legal reduces tax minimization considerably. Legislators can thus, in principle, affect subjects’ decisions by defining the line between legality and illegality. However, once we introduce potential negative financial consequences, we observe no difference between legal and illegal tax minimization behavior. Only if we use moral priming to increase subjects’ moral cost do we again find a legality effect on tax minimization. Overall, this demonstrates the limitations of the expressive function of the law. Legality might be an important determinant of behavior only if we consider activities with little or no risk of negative financial consequences or if subjects are morally primed.

In a real-effort laboratory experiment to manipulate evasion opportunities, we study whether the moral evaluation of tax evasion is subject to a self-serving bias. We find that tax morale is egoistically biased: Subjects with the opportunity to evade taxes judge tax evasion as less unethical as opposed to those who cannot evade. The detection probability does not affect this result. Further, we do not find moral spillover effects, for example, on legal activities.

Using a panel of German income tax accounting data from taxpayers with no business income (employees), we find a negative relationship between tax preparation expenses and tax liabilities. However, preparation expenses are shown to exceed estimated tax savings. Specifically, one additional Euro spent on preparation yields an estimated tax savings of 72 cents in an OLS regression and 24 cents in a fixed effects regression. In addition, we observe substantial heterogeneity in tax savings among income groups, but even if we account for long-term tax savings, tax liability reductions exceed tax preparation expenses only for the highest income quintile. In all other income quintiles, average preparation expenses exceed the estimated tax and time savings. Based on these results, we also examine whether other specific benefits affect an individual's decision to purchase tax preparation services, and the results indicate the importance of the benefits of coping with complexity and reduced uncertainty. Overall, our findings illustrate that the current tax compliance process violates at least two of Adam Smith's principles of taxation, taxes are neither certain nor fair. This article is protected by copyright. All rights reserved.

In this paper, we use a tax compliance game with a public good to investigate the impact of public disclosure on tax evasion behavior experimentally. Three different types of tax privacy are tested, ranging from complete privacy to full disclosure. We expect two different effects: first, a contagion effect, arising when an individual observes non-compliance of other individuals and therefore reduces her own tax compliance; second, a shame effect of increased tax compliance due to the anticipated shame of being declared a tax evader. Both these effects are supported by the experimental results. However, the shame effect reduces tax evasion only in the short run. The influence of shame diminishes over the course of the experiment with subjects observing the non-compliance of other participants. Thus, our results indicate that when the contagion and the shame effect are present the latter is not strong enough to override the former in the long run. Furthermore, disclosing tax information anonymously ...

Tax preparation firms advertise their services as a way to save taxes. Along this line, we use a large cross-sectional sample of German income tax accounting data, consisting of employees and other taxpayers with non-business income, to explore the relationship between expenses for tax preparation and tax liabilities. We find a negative link with expenses exceeding estimated tax savings. Specifically, one additional Euro yields estimated tax savings of only 75 Cents which implies that individual tax planning is no profitable investment from a tax saving perspective. In consideration of time savings, tax planning is worthwhile only for high income groups. This result suggests for most taxpayers an overinvestment. Potential explanations include an overvaluation of time and tax savings or a benefit of tax planning beyond these savings.

Betriebliche Zusatzleistungen sind eine weit verbreitete und wichtige Entgelt-Komponente. Darunter verstanden werden materielle Leistungen wie z.B. Weihnachtsgratifikationen, Dienstwagen und betriebliche Altersversorgung oder immaterielle Leistungen wie z.B. personlichkeitsfordernde Arbeitszeit- und Arbeitsplatzgestaltung oder betriebliche Gesundheitsforderung. Betriebliche Zusatzleistungen sollen insbesondere als Anreiz dienen: zum einen, um potenzielle Mitarbeiter/innen zu gewinnen, und zum anderen um die Loyalitat und die Bindung von aktuell beschaftigten Mitarbeiter/innen zu erhohen. Neben einer Anreizfunktion konnen sie auch eine Fursorgefunktion erfullen, daher werden sie auch als betriebliche Sozialleistungen bezeichnet (vgl. z.B. die Uberblicke von Alewell 2004; Kolb 2004; Lutz 2005).

We apply conjoint analysis to study the influence of tax labeling and tax earmarking on German taxpayers' willingness to contribute. From a survey based sample we show that labeling and earmarking effects can substantially increase participants' willingness to contribute, which results in a considerable deviation from a pure consumption maximizing behavior. Furthermore, we give an explanation for this effect regarding socio-demographic attributes of German taxpayers. These results explain the variety in tax labels and provide implications for tax policy regarding further reforms of the tax and contribution system: Labeling and earmarking of contributions are important instruments in selling policies and increasing tax revenue.

We analyze the compliance costs of individual taxpyers resulting from the German income tax. using survey data that has been raised between December 2008 and April 2009, we find evidence for a considerably higher cost burden of self-employed taxpaxers. Taxable income and the demand for external support are positively correlated with compliance costs, while the time effort of female taxpayers is significantly lower. We also find evidence for a positive correlation of education and tax knowledge with the compliance burden. By contrast, a joint assessment of a married couple seems to reduce the monetized time effort. The aggregated cost burden of German income taxpayers amounts to 6.1-7.2 billion €, respectively 3.2-3.7 % of the income tax revenue in 2007. This estimate is higher than latest projections in a number of other European countries like Spain and Sweden, but significantly lower than results for the United States and Australia.

In a controlled laboratory experiment, subjects had to fold letters in order to earn money. While the net income per letter was the same in the three treatments, the gross income varied and the tax rate was 0, 25% and 50%. Although work incentives should be the same in all treatments, subjects worked harder and longer when they were taxed. We conclude that this is due to a "gross-wage illusion effect". The existence of this effect demonstrates that not only the tax rate and the tax base are of importance for work incentives, but also the perception of a tax.

This paper gives a survey of the experimental literature on the perception (bias) of individuals with respect to their own tax burden and its effect on economic decisions. Six strands of literature are discussed: (1) perception of marginal tax rates, (2) influence of tax complexity on tax perception, (3) taxation and incentives to work, (4) tax salience, (5) tax morale and fairness and (6) money illusion, perceived inflation and fiscal drag. The literature discussed contains more evidence for than against a perception bias.

In this paper we apply conjoint analysis as an empirical method to study the influence of tax labeling and tax earmarking on the perceived tax burden. As reference for the individual behavior we use the model of a rational utility maximizer described by the economic theory. We determine a significant influence of the labeling and the earmarking of taxes. We can show that the labeling and earmarking effect can decrease the perceived tax burden for the test persons which results in a deviation from a (rational) consumption maximizing behavior. These results give important implications for tax policy regarding further reforms of the tax and contribution system.

In this paper we apply conjoint analysis to study the influence of changes in the tax rate and the tax base on the perceived tax burden. Our results show that the majority of individuals do not make rational tax decisions based on the actual tax burden, but rather use simple decision heuristics. This leads to the importance of the tax rate being significantly overestimated and the importance of the tax base being significantly underestimated. Furthermore we determine framing effects and show that under specific assumptions, a rise in the actual tax burden can lead to a electoral success.