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Title:Mental accounting and the impact of tax penalty and audit frequency on the declaration of income: An experimental analysis PDF Logo
Authors:Maciejovsky, Boris
Kirchler, Erich
Schwarzenberger, Herbert
Issue Date:2001
Series/Report no.:Discussion Papers, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes 2001,16
Abstract:We investigate (i) whether traders on an experimental asset market form different and separate mental accounts for sale revenues and for dividend earnings and whether (ii) an increase in tax penalty or (iii) an increase in audit frequency increases tax compliance. The results indicate that participants did not form separate mental accounts for sale revenues and for dividend earnings. However in line with prospect theory, it can be shown that a purchase of assets is perceived as a subjective loss that one tries to repair by risk seeking behavior. Participants who increased their net asset holdings declared less income to the tax authorities. Furthermore, the results indicate that an increase in tax penalties as well as an increase in audit frequency increased compliance. In addition, it was found that tax compliance was lower after an audit, especially after the first audit, and that it was lower for participants with high incomes.
Subjects:mental accounting
tax evasion
prospect theory
JEL:C91
D44
Persistent Identifier of the first edition:urn:nbn:de:kobv:11-10049269
Document Type:Working Paper
Appears in Collections:Discussion Papers, SFB 373, HU Berlin

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