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http://hdl.handle.net/10419/59878
  
Title:Security returns and tax aversion bias: Behavioral responses to tax labels PDF Logo
Authors:Blaufus, Kay
Möhlmann, Axel
Issue Date:2012
Series/Report no.:Arqus-Diskussionsbeiträge zur quantitativen Steuerlehre 133
Abstract:This paper studies behavioral responses to taxes in financial markets. It is motivated by recent puzzling empirical evidence of taxable municipal bond yields significantly exceeding the level expected relative to tax exempt bonds. A behavioral explanation is a tax aversion bias, the phenomenon that people perceive an additional burden associated with tax payments. We conduct market experiments on the trading of differently taxed and labeled securities. The data show an initial overvaluation of tax payments that diminishes when subjects gain experience. The tax deduction of expenses is valued more than an equivalent tax exemption of earnings. We find that the persistence of the tax aversion bias critically depends on the quality of feedback. This suggests that tax aversion predominantly occurs in one-time, unfamiliar financial decisions and to a lesser extent in repetitive choices.
Subjects:Behavioral finance
Behavioral taxation
Investor psychology
Tax aversion
Experiment
JEL:D03
G32
H20
H3
Document Type:Working Paper
Appears in Collections:arqus Diskussionsbeiträge zur Quantitativen Steuerlehre

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