TY - BOOK

T1 - Essays on the Effects of Deferred Taxation and Tax Audit Negotiations

AU - Milde, Michael

N1 - Doctoral thesis

PY - 2020

Y1 - 2020

N2 - This dissertation contains a total of three papers. In the first two studies, behavioral economic effects resulting from deferred taxation are examined. The last study deals with the question which factors influence the choice of negotiation strategies of tax auditors of the tax authorities and which effects these strategies have on the outcome of a tax audit. The first study uses several laboratory experiments to show that taxes are misperceived when savings decisions are made in a deferred taxation system. This leads to significantly lower after-tax pensions than in an economically equivalent system of immediate taxation. For subjects with low tax and financial knowledge, the misperceptions remain despite accumulated experience. For all subjects, the tax misperceptions almost disappear only after they have received recurrent numerical informational nudges regarding pension taxation and have gained experience. Furthermore, using government matching contributions instead of tax deductions might reduce necessary informational costs and still achieve significantly higher retirement savings. The second study shows that deferred income taxation influences not only individual saving behavior but also entrepreneurs' production behavior and risk allocation. Several laboratory experiments reveal that nearly 80\% of all subjects engage in overproduction. This is mainly due to the fact that subjects underweight the deferred tax burden because they often act myopically and tend to make decisions in isolation rather than simultaneously (choice bracketing). As a result, the willingness to take risks decreases. This is particularly due to the additional cognitive load associated with the taxation of investment income. However, the participants learn through experience. Despite these learning effects, however, the overproduction is only marginally reduced, since mainly participants with high cognitive capacity learn. Overproduction and distortions in risk allocation only almost disappear if the timing of taxation is changed from a deferred to an economically equivalent immediate taxation system. For the last paper of this dissertation, German tax auditors were asked about their negotiation strategies in connection with the outcome of a tax audit. The study shows that the outcome and the probability of agreement during an audit depend on which negotiation strategy the tax auditor chooses. Furthermore, the study provides insights into the determinants of the auditor's choice of strategy. It is shown that the choice of strategy is influenced not only by tax auditor's audit experience, the availability of higher authority, time pressure or the quality of a taxpayer's financial accounting system but also by the perceived negotiation strategy of the tax advisor.

AB - This dissertation contains a total of three papers. In the first two studies, behavioral economic effects resulting from deferred taxation are examined. The last study deals with the question which factors influence the choice of negotiation strategies of tax auditors of the tax authorities and which effects these strategies have on the outcome of a tax audit. The first study uses several laboratory experiments to show that taxes are misperceived when savings decisions are made in a deferred taxation system. This leads to significantly lower after-tax pensions than in an economically equivalent system of immediate taxation. For subjects with low tax and financial knowledge, the misperceptions remain despite accumulated experience. For all subjects, the tax misperceptions almost disappear only after they have received recurrent numerical informational nudges regarding pension taxation and have gained experience. Furthermore, using government matching contributions instead of tax deductions might reduce necessary informational costs and still achieve significantly higher retirement savings. The second study shows that deferred income taxation influences not only individual saving behavior but also entrepreneurs' production behavior and risk allocation. Several laboratory experiments reveal that nearly 80\% of all subjects engage in overproduction. This is mainly due to the fact that subjects underweight the deferred tax burden because they often act myopically and tend to make decisions in isolation rather than simultaneously (choice bracketing). As a result, the willingness to take risks decreases. This is particularly due to the additional cognitive load associated with the taxation of investment income. However, the participants learn through experience. Despite these learning effects, however, the overproduction is only marginally reduced, since mainly participants with high cognitive capacity learn. Overproduction and distortions in risk allocation only almost disappear if the timing of taxation is changed from a deferred to an economically equivalent immediate taxation system. For the last paper of this dissertation, German tax auditors were asked about their negotiation strategies in connection with the outcome of a tax audit. The study shows that the outcome and the probability of agreement during an audit depend on which negotiation strategy the tax auditor chooses. Furthermore, the study provides insights into the determinants of the auditor's choice of strategy. It is shown that the choice of strategy is influenced not only by tax auditor's audit experience, the availability of higher authority, time pressure or the quality of a taxpayer's financial accounting system but also by the perceived negotiation strategy of the tax advisor.

U2 - 10.15488/10312

DO - 10.15488/10312

M3 - Doctoral thesis

CY - Hannover

ER -