Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/224787 
Year of Publication: 
2020
Series/Report no.: 
Passauer Diskussionspapiere - Betriebswirtschaftliche Reihe No. B-43-20
Publisher: 
Universität Passau, Wirtschaftswissenschaftliche Fakultät, Passau
Abstract: 
This paper investigates the presence of framing effects and loss aversion in tax reporting behavior of wage earners using a balanced panel of German income tax return data. Reference dependence and loss aversion suggest that individuals in a perceived loss situation attribute higher value to a given amount of positive change in outcome than individuals in a perceived gain situation do. Applied to tax reporting behavior, taxpayers who perceive their tax situation as unfavorable compared to a given reference point are expected to make greater effort or accept higher costs to prevent or reduce that perceived loss than taxpayers perceiving themselves to be in a favorable situation. Greater effort can in turn be associated with higher reporting aggressiveness. We identify a potential reference point in taxpayers' previous year's outcome and examine whether taxpayers claim higher additional tax deductions in a loss situation than in a gain situation. We use a difference-in-difference approach with a one-on-one matching strategy to analyze reporting behavior. We find that taxpayers in a loss situation claim higher income-related deductions than taxpayers in a gain situation.
Subjects: 
loss aversion
framing
tax avoidance
nonbusiness tax
JEL: 
D91
H24
H26
Document Type: 
Working Paper

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