Tax-Rate Biases in Tax-Planning Decisions: Experimental Evidence

Publication: Working/Discussion PaperWU Working Paper


This paper investigates how decision biases affect individuals’ tax decisions. We conduct four laboratory experiments with 303 students and 62 experienced tax professionals and find a systematic tax-rate bias in decisions under time constraints. More specifically, decision makers overestimate the relevance of less complex tax-rate information compared to more complex tax-base information, leading to suboptimal decision-making. We also find support for the theory of rational inattention as increasing the size of the tax-base effect mitigates the decision bias. However, we find that tax decisions are unaffected by participants’ professional experience: Students and highly experienced tax professionals are similarly prone to biased decision-making. Overall, our findings suggest that time constraints impede the use of complex information which can result in suboptimal tax planning.
Original languageEnglish
PublisherWU Vienna University of Economics and Business
Publication statusPublished - 2019

Publication series

NameWU International Taxation Research Paper Series

WU Working Paper Series

  • WU International Taxation Research Paper Series

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