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Testing taxpayers' cognitive abilities - Survey-based evidence

Author

Listed:
  • Nima Massarrat-Mashhadi

    (Freie Universitaet Berlin, Department of Finance, Accounting and Taxation, Garystraße 21, 14195 Berlin, Germany)

  • Christian Sielaff

    (Freie Universitaet Berlin, Department of Finance, Accounting and Taxation, Garystraße 21, 14195 Berlin, Germany)

Abstract

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.

Suggested Citation

  • Nima Massarrat-Mashhadi & Christian Sielaff, 2012. "Testing taxpayers' cognitive abilities - Survey-based evidence," International Journal of Business and Economic Sciences Applied Research (IJBESAR), International Hellenic University (IHU), Kavala Campus, Greece (formerly Eastern Macedonia and Thrace Institute of Technology - EMaTTech), vol. 5(1), pages 7-22, April.
    • Handle: RePEc:tei:journl:v:5:y:2012:i:1:p:7-22
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    References listed on IDEAS

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    Cited by:

    1. Jane G. Gravelle & Sean Lowry, 2016. "The Affordable Care Act, Labor Supply, and Social Welfare," National Tax Journal, National Tax Association;National Tax Journal, vol. 69(4), pages 863-882, December.

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    More about this item

    Keywords

    Tax Complexity; Survey Data; Estimated Tax Rates;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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