Mental Accounting, Loss Aversion, and Tax Evasion: Theory and Evidence

Arbeitspapier

The evidence shows source-dependent entitlement to income sources and individuals are reluctant to part with income they feel more entitled to, e.g., earned labor income. Taxpayers may also be more reluctant to part with tax payments (evade more) from income sources they feel more entitled to- a form of mental accounting. We embed two main hypotheses within a rigorous theoretical model based on prospect theory. From incomes sources they feel more entitled to, taxpayers experience (i) greater loss aversion from paying taxes, and (ii) lower moral costs of evasion. We confirm the predictions of our model through MTurk experiments. Evasion is increasing in the tax rate and decreasing in the audit penalty. Moral costs influence taxpayers' decisions. Loss aversion, measured "directly" for the first time for each individual in an evasion experiment, reduces evasion, as predicted by our theory. Loss aversion, risk aversion, and their interaction, are critical determinants of evasion.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CESifo Working Paper ; No. 8606

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Design of Experiments: Laboratory, Individual ; Design of Experiments: Laboratory, Group Behavior ; Asymmetric and Private Information; Mechanism Design ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Thema: mental accounting ; tax evasion ; loss aversion ; morality ; prospect theory ; risk-aversion

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Dhami, Sanjit ; Hajimoladarvish, Narges
• Ereignis: Veröffentlichung
• (wer): Center for Economic Studies and Ifo Institute (CESifo)
• (wo): Munich
• (wann): 2020

Weitere Informationen

• Handle: http://hdl.handle.net/10419/226308
• Letzte Aktualisierung: 10.03.2025, 11:46 MEZ