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Testing taxpayers' cognitive abilities - Survey-based evidence

  • Nima Massarrat-Mashhadi

    ()

    (Freie Universitaet Berlin, Department of Finance, Accounting and Taxation, Garystra├če 21, 14195 Berlin, Germany)

  • Christian Sielaff

    ()

    (Freie Universitaet Berlin, Department of Finance, Accounting and Taxation, Garystra├če 21, 14195 Berlin, Germany)

Registered author(s):

    Our paper assesses the accuracy of individuals' tax perceptions. Based on personal interviews, we aim to find out how tax complexity affects the capability of respondents to calculate income tax liability. Tax complexity is measured by interacting multiple tax rates, applied to one or more tax bases. Empirical results question the traditional view of taxpayers having a comprehensive understanding of taxation rules. Our findings support the view that increasing complexity affects the capability of taxpayers to accurately calculate income tax liability. For tax policy, there is also a need to determine how taxpayers erroneously deviate in terms of extent and direction, when facing increasing tax complexity. Our research design allows us to analyze extent and possible direction of the calculation bias. Approximating an empirical distribution of erroneous calculated effective tax rates could be helpful to design a more effective income tax system.

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    Article provided by Eastern Macedonia and Thrace Institute of Technology (EMATTECH), Kavala, Greece in its journal International Journal of Economic Sciences and Applied Research (IJESAR).

    Volume (Year): 5 (2012)
    Issue (Month): 1 (April)
    Pages: 7-22

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    Handle: RePEc:tei:journl:v:5:y:2012:i:1:p:7-22
    Contact details of provider: Web page: http://ijbesar.teiemt.gr/

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    1. Raj Chetty, 2008. "Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance," NBER Working Papers 13844, National Bureau of Economic Research, Inc.
    2. Fujii, Edwin T & Hawley, Clifford B, 1988. "On the Accuracy of Tax Perceptions," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 344-47, May.
    3. Kelly Edmiston & Shannon Mudd & Neven Valev, 2003. "Tax Structures and FDI: The Deterrent Effects of Complexity and Uncertainty," Fiscal Studies, Institute for Fiscal Studies, vol. 24(3), pages 341-359, September.
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