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Comparing Direct and Indirect Taxation: The Influence of Framing on Tax Compliance

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  • Robert Ullmann
  • Christoph Watrin
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    Abstract

    Standard theory of the optimal mix of direct and indirect taxation implicitly assumes that compliance is not influenced by the framing of the taxes. According to our findings, this is not the case. Using an experimental approach, we examine whether framing the tax payment decision as income tax or consumption tax influences compliance. We find that median compliance is 10.2 percentage points higher in the income tax framing. Further, we find that subjects' reaction to a change in tax rates is comparable, but reaction towards a change in detection rates is higher in the consumption tax scheme. We conclude that behavioral patterns should be taken into account when drawing conclusions about the direct-indirect tax mix

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    Bibliographic Info

    Article provided by Cattaneo University (LIUC) in its journal The European Journal of Comparative Economics.

    Volume (Year): 5 (2008)
    Issue (Month): 1 (June)
    Pages: 23-56

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    Handle: RePEc:liu:liucej:v:5:y:2008:i:1:p:23-56

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    Keywords: Comparative analysis of tax systems ; behavioral public finance ; optimal tax mix ; noncompliance ; framing;

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    Cited by:
    1. European Commission, 2012. "Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2012 Report," Taxation Papers, Directorate General Taxation and Customs Union, European Commission 34, Directorate General Taxation and Customs Union, European Commission.
    2. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, Elsevier, vol. 40(C), pages 1-19.

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