Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/323941 
Year of Publication: 
2025
Series/Report no.: 
arqus Discussion Paper No. 304
Publisher: 
Arbeitskreis Quantitative Steuerlehre (arqus), Berlin
Abstract: 
We examine behavioral frictions in entrepreneurs' tax planning when choosing between corporate and partnership taxation under a check-the-box rule. Using German tax return data, we show that only a small fraction of entrepreneurs opt for corporate taxation, despite substantial potential tax savings. A pre-registered incentivized online experiment demonstrates that complexity aversion, status quo bias, and misperception about the corporate tax burden-arising from the interaction of corporate and deferred dividend taxation-help explain the preference for partnership taxation. We further find that these behavioral frictions heighten liquidity risk under the corporate system, particularly in the face of unexpected cash flow needs. Finally, a survey of German tax advisors indicates that tax advice only partially mitigates these frictions. Some advisors misperceive the benefits of corporate taxation, while others anticipate client biases and therefore refrain from recommending the corporate tax system.
Subjects: 
Check-the-box
Legal Form
Tax Complexity
Tax Misperception
Behavioral Taxation
Tax Advice
JEL: 
H25
D91
D22
Document Type: 
Working Paper

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