Details
| Original language | English |
|---|---|
| Pages (from-to) | 56-69 |
| Number of pages | 14 |
| Journal | Journal of Behavioral Finance |
| Volume | 15 |
| Issue number | 1 |
| Early online date | 6 Mar 2014 |
| Publication status | Published - 2014 |
Abstract
This article studies behavioral responses to taxes in financial markets. It is motivated by recent puzzling empirical evidence of taxable municipal bond yields significantly exceeding the level expected relative to tax exempt bonds. A behavioral explanation is a tax aversion bias, the phenomenon that people perceive an additional burden associated with tax payments. We conduct market experiments on the trading of differently taxed and labeled securities. The data show an initial overvaluation of tax payments that diminishes when subjects gain experience. The tax deduction of expenses is valued more than an equivalent tax exemption of earnings. We find that the persistence of the tax aversion bias critically depends on the quality of feedback. This suggests that tax aversion predominantly occurs in one-time, unfamiliar financial decisions and to a lesser extent in repetitive choices.
Keywords
- Behavioral finance, Behavioral taxation, Experiment, Investor psychology, Tax aversion
ASJC Scopus subject areas
- Psychology(all)
- Experimental and Cognitive Psychology
- Economics, Econometrics and Finance(all)
- Finance
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In: Journal of Behavioral Finance, Vol. 15, No. 1, 2014, p. 56-69.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Security Returns and Tax Aversion Bias
T2 - Behavioral Responses to Tax Labels
AU - Blaufus, Kay
AU - Möhlmann, Axel
PY - 2014
Y1 - 2014
N2 - This article studies behavioral responses to taxes in financial markets. It is motivated by recent puzzling empirical evidence of taxable municipal bond yields significantly exceeding the level expected relative to tax exempt bonds. A behavioral explanation is a tax aversion bias, the phenomenon that people perceive an additional burden associated with tax payments. We conduct market experiments on the trading of differently taxed and labeled securities. The data show an initial overvaluation of tax payments that diminishes when subjects gain experience. The tax deduction of expenses is valued more than an equivalent tax exemption of earnings. We find that the persistence of the tax aversion bias critically depends on the quality of feedback. This suggests that tax aversion predominantly occurs in one-time, unfamiliar financial decisions and to a lesser extent in repetitive choices.
AB - This article studies behavioral responses to taxes in financial markets. It is motivated by recent puzzling empirical evidence of taxable municipal bond yields significantly exceeding the level expected relative to tax exempt bonds. A behavioral explanation is a tax aversion bias, the phenomenon that people perceive an additional burden associated with tax payments. We conduct market experiments on the trading of differently taxed and labeled securities. The data show an initial overvaluation of tax payments that diminishes when subjects gain experience. The tax deduction of expenses is valued more than an equivalent tax exemption of earnings. We find that the persistence of the tax aversion bias critically depends on the quality of feedback. This suggests that tax aversion predominantly occurs in one-time, unfamiliar financial decisions and to a lesser extent in repetitive choices.
KW - Behavioral finance
KW - Behavioral taxation
KW - Experiment
KW - Investor psychology
KW - Tax aversion
UR - http://www.scopus.com/inward/record.url?scp=84897780342&partnerID=8YFLogxK
U2 - 10.1080/15427560.2014.877017
DO - 10.1080/15427560.2014.877017
M3 - Article
AN - SCOPUS:84897780342
VL - 15
SP - 56
EP - 69
JO - Journal of Behavioral Finance
JF - Journal of Behavioral Finance
SN - 1542-7560
IS - 1
ER -