Rational choice of itemized deductions

Matthias Wrede

No 01/2013, FAU Discussion Papers in Economics from Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics

Abstract: This paper analyzes the effect of standard deductions on itemized deductions. Using German income tax data, it shows that the distribution of itemized deductions above the level of the standard deduction is positively skewed, with the mode lying somewhat above the standard deduction. This pattern of claimed tax allowable expenses could be easily explained by the rational minimization of tax payments in excess of the costs of reporting these deductions. An alternative explanation, namely tax aversion, is unable to replicate this pattern, as tax aversion would predict bunching of taxpayers directly above the lump-sum deduction.

Keywords: tax compliance; tax allowable expenses; itemized deductions; simplification (search for similar items in EconPapers)
JEL-codes: H24 H26 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-acc and nep-pbe
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:iwqwdp:012013

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