Mental accounting of income tax and value added tax among self-employed business owners

Mental accounting describes a series of cognitive operations that help organize financial activities and facilitate money management. Self-employed taxpayers who make use of a separate mental account for future income tax payments or collected value added tax (VAT) might find it easier to declare their taxes correctly than taxpayers who do not. This study used a questionnaire to investigate whether self-employed taxpayers (N = 350) use mental accounting to manage their income tax and VAT obligations, whether mental accounting relates to tax knowledge, business and personality characteristics, and to what extent mental accounting is related to intended tax behavior. Our results reveal that some taxpayers mentally segregate taxes from turnover (segregators) while others do not (integrators). We found small differences in mental accounting between income taxes and VAT. Moreover, confirmatory factor analyses suggested that tax knowledge and mental accounting are distinct constructs. Segregation of taxes was related to lower impulsivity and more positive attitudes toward taxation. Individuals who stated they segregate taxes due from turnover more often claimed to run financially prosperous businesses. Mental accounting was not related to intentions of evading taxes, but individuals with higher mental accounting scores reported more pronounced levels of tax planning. While our research design does not allow drawing causal inferences, these findings could suggest that increasing self-employed taxpayers’ ability to organize their financial activities might be a promising strategy to strengthen the competitiveness of their businesses. Keywords: mental accounting, tax, income tax, VAT, tax complianc

Arbeitsaufwand, Anspruchsniveau und Steuerehrlichkeit

Is tax compliance influenced by the effort invested in earning one's income? Effort could increase value of income and, therefore, increase reluctance to pay taxes. On the other hand, the risk of being fined might deter tax payers from evasion, particularly if large amounts of effort were invested. In study 1, participants (N=113) made compliance decisions on either hard-earned or easily earned income. In study 2 (N=155), in addition to work load, aspiration levels were manipulated, i.e., the expected level of income. Results show that high investments of effort increase compliance. A high aspiration level in combination with high effort further enhanced compliance

Tax Compliance by Trust and Power of Authorities

The following is a summary of Kirchler et al.'s (2008a) framework for tax compliance. The 'slippery slope' framework distinguishes two forms of compliance. Whereas voluntary compliance is driven by trust in tax authorities, enforced compliance depends on the power of authorities. It is assumed, however, that the interplay of trust and power is crucial for both forms of compliance. The framework serves as a guideline for tax research and tax policy.Tax compliance, trust, power,

Neighborhood Monitoring in Ad Hoc Networks

Much research in ad hoc networks utilizes monitoring mechanisms to detect maliciously acting nodes. The faults that a system is exposed to range from simple omissions to packet manipulations and misrouting. Several monitoring techniques have been presented that address malicious behavior in specific environments, but each has their restrictive assumptions about detection and mitigation in hostile environments. We generalize the notion of malicious behavior of related research and outline a k-hop monitoring approach that allows us to drop many assumptions limiting previous work. Specifically, we include collaboration of malicious nodes, the presence of malicious nodes during neighborhood exploration, and misrouting. However, the approach exposes also the associated overhead in providing detection and correction thresholds. 1

Why Pay Taxes? A Review of Tax Compliance Decisions

Since the standard model of income tax evasion (Allingham & Sandmo, 1972; Srinivasan, 1973) was published, much research has tested its four parameters (level of actual income, tax rate, audit probability, penalty rate) for empirical validity. Surveys, laboratory experiments and analysis of aggregate data revealed ambiguous evidence for the model’s behavioral implications. The present article reviews these studies and concludes that compliance decisions can only partly be explained by the rational choice approach. We suggest that depending on the climate in a society, compliance stems from two different factors. In a climate of distrust, high power of authorities is needed to enforce tax compliance and increasing fines and audit probabilities may be an effective tax policy. In a climate where taxpayers trust the authorities of their state, however, other variables gain in importance. Knowledge, attitudes, moral appeals, fairness and democracy may lead to voluntary compliance. In this case, draconian fines and intrusive audits can take unintentional effects and would corrupt tax morale.compliance decisions, tax evasion, audits, fines, trust

What Goes Around Comes Around? Experimental Evidence of the Effect of Rewards on Tax Compliance

The current experimental study examined the effect of monetary rewards on tax compliance. Eighty-six participants were randomly assigned to one control and two reward conditions (low vs. high reward). Overall, tax compliance was not affected by the rewards. However, a change in compliance strategies was observed. It seems that rewards provoked an all-or-nothing behavior. Whereas in the reward conditions, participants were either completely honest or evaded all of their income, in the control condition, the amount of evasion varied more strongly. Furthermore, audited compliant taxpayers who are rewarded evaded less in the following period compared with audited compliant taxpayers who experienced no rewards.tax compliance; fines; rewards; positive incentives; bomb-crater effect

Une typologie des contribuables travailleurs indépendants basée sur les attitudes motivationnelles

International audienceUne enquête effectuée auprès d'un échantillon représentatif de 471 travailleurs indépendants a permis d'identifier différents types de contribuables à partir de leurs attitudes motivationnelles devant l'impôt. Quatre groupes (clusters) ont été mis en évidence par une analyse en regroupement hiérarchique. Les contribuables "solidaires" perçoivent le système fiscal comme juste et paient volontiers leurs impôts, contrairement aux contribuables "non-solidaires" qui ont, eux, un sentiment d'injustice en matière fiscale. Les contribuables "critiques", qui ont également le sentiment d'être traités injustement, ont un niveau de résistance fort, mais ne réagissent pas forcément en fraudant leurs impôts. Enfin, les contribuables "stratégiques" ont le sentiment d'être traités d'une manière juste mais fraudent lorsqu'ils le peuvent. Au final, il apparaît donc que les attitudes positives ou respectivement négatives par rapport aux impôts ne conduisent pas forcément à l'honnêteté fiscale ou respectivement à la fraude fiscale. Les comportements coopératifs ou non-coopératifs résultent donc d'une combinaison plus complexe de motivations