The Role of Tax Rate Based Decisions Heuristics in Tax Planning through intra-group financing

Activity: Talk or presentationScience to science


Contrary to standard economic theory, recent empirical findings suggest that firms do not always minimize their tax payments. We conduct a laboratory experiment and find robust evidence that decision biases could offer a behavioral explanation for suboptimal tax planning. When facing time pressure in an intra-group cross-border financing decision, subjects apply heuristics based on the salience of statutory tax rates. This stirs decision makers to underestimate the effects of tax base changes and causes economically suboptimal tax planning decisions. We find that tax planning behavior is largely unaffected by subjects’ work experience or education in accounting, taxation, and finance. Yet, we observe an overconfidence bias in subjects with some relevant work experience. In line with models of rational inattention, an increasing tax burden difference between two tax planning strategies weakly mitigates the use of heuristics and thus the decision bias.
Period19 Nov 201521 Nov 2015
Event titleNational Tax Association's 108th Annual Conference on Taxation
Event typeUnkonwn
Degree of RecognitionInternational