The Biased Effect of Aggregated and Disaggregated Income Taxation on Investment Decisions
AbstractIn a laboratory experiment that allows us to vary the taxation method while keeping the financial outcomes constant, we find clear evidence that aggregated income taxation (comparable to profit taxation) with complete loss deduction induces a sustained bias towards more risky investment decisions, while disaggregated income taxation (comparable to a transaction taxation with loss offset) does not. We suggest that this bias may be exploited to increase the volume of private investments by choosing aggregated income taxation if investors are (too) risk-averse, and to decrease the volume and the risk by choosing disaggregated income taxation if investors are (too) risk-seeking.
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Bibliographic InfoArticle provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.
Volume (Year): 168 (2012)
Issue (Month): 3 (September)
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Web page: http://www.mohr.de/jite
Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
Other versions of this item:
- Martin Fochmann & Dirk Kiesewetter & Abdolkarim Sadrieh, 2010. "The Biased Effect of Aggregated and Disaggregated Income Taxation on Investment Decisions," FEMM Working Papers 100025, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
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- Fahr, René & Janssen, Elmar & Sureth, Caren, 2014. "Can tax rate increases foster investment under entry and exit flexibility? Insights from an economic experiment," arqus Discussion Papers in Quantitative Tax Research 166, arqus - Arbeitskreis Quantitative Steuerlehre.
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