Real tax effects and tax perception effects in decisions on asset allocation

Martin Fochmann and Kristina Hemmerich

No 156, arqus Discussion Papers in Quantitative Tax Research from arqus - Arbeitskreis Quantitative Steuerlehre

Abstract: We test the predictions of the theoretical literature initiated by the study of Domar and Musgrave (1944) with a laboratory experiment in which subjects have to decide on the composition of an asset portfolio. Our simple design enables us to distinguish between Real Tax Effects and Perception Effects when a proportional income tax, with and without a full loss offset provision, is introduced. Observed investment behavior is partially inconsistent with the theoretical predictions if we do not control for the Perception Effects. However, if we consider these effects, we find support for the theory. The isolated Perception Effects can explain the unexpected behavior observed in previous studies and has both scientific and political implications.

Keywords: Taxation; Domar-Musgrave Effect; Tax Perception; Risk Taking Behavior; Portfolio Choice; Behavioral Taxation (search for similar items in EconPapers)
JEL-codes: C91 D14 H24 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/95957/1/782809413.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:arqudp:156

Access Statistics for this paper

More papers in arqus Discussion Papers in Quantitative Tax Research from arqus - Arbeitskreis Quantitative Steuerlehre
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().