Raising the stakes: Experimental evidence on the endogeneity of taxpayer mistakes

Naomi Feldman, Jacob Goldin, Tatiana Homono

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

Recent evidence suggests consumers fail to account for taxes that are excluded from a good’s displayed price. What is less understood is whether and how such “salience effects” depend on the magnitude of the tax. We conduct a laboratory shopping experiment with real stakes to study the effect of tax size on salience. We find no evidence that salience effects decline as the tax rate increases; we document a statistically significant salience effect at a tax rate that is considerably larger than the tax rates at which such effects have been previously documented. In fact, our results are more consistent with the hypothesis that higher taxes make consumers less attentive (at least for the range of taxes we consider). This result can be explained by a confirmation bias theory of salience: consumers tend to disregard information (like a tax) that does not align with their intention to purchase an item, and this lack of alignment increases in the size of the tax.

Original languageEnglish
Pages (from-to)201-230
Number of pages30
JournalNational Tax Journal
Volume71
Issue number2
DOIs
StatePublished - 1 Jun 2018
Externally publishedYes

Keywords

  • Confirmation bias
  • Sales tax
  • Salienc

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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