Erich KirchlerUniversity of Vienna, Austria

ICAP-Paris - 2014

Tax Psychology (4)Segmentation: age, gender, income, education and self-

employment

Differential perspective

Taxpayers should not all be lumped together and perceived as a homogeneous group: they find themselves in various situations, have developed different personal values, prove generous when there are calls for donations for the socially disadvantaged or those effected by catastrophes, and often have a decided sense of community.

View of humankind:

Social beings with different motivational postures

Education strategies: responsive regulation

Differential perspective(s) - segmentation

Tax authority

Government

Taxpayers

Individuals characterized by motivational postures

Seg

men

tatio

n an

d re

spon

sive

reg

ulat

ion

View of system:Authorities

Differential perspective(s) - segmentation

Person:

Opportunity makes the thiefSocio-demographic characteristics: age, gender, education, income, etc. … Religion, personal norms, personality characteristics, etc.

• Right and left hand with Canon Scanner• Digital measuring of R2D, R4D, L2D, L4D (digital vernier caliper; 0.01 mm)

AgeSex (assessing 2D:4D)

• Repetition of measurement after two days• ICC = .975 – .999

(F = 78.51 – 2261.69; df1 = 106; df2 = 106, p < .001)

Tax compliance by sex

♂M(SD) = 139.70(52.42) ♀M(SD) = 111.08(48.95)

t(104) = 2.86, p <.01

Demographic segmentationMeta-analyses of effects of socio-demographic characteristics (Hofmann, E. et al., 2014)

Approximately 459 studies; 570,000 participants

Age: Studies: 416 (mainly EVS, ISSP, Latinobarometro, WVS)

N = 550,870 r = .12***

Sex: Studies: 459 (mainly ESS, EVS, ISSP, Latinobarometro, WVS)

N = 570,408 r = .06***

Education: Studies: 342 (mainly EVS, ISSP, Latinobarometro, WVS)

N = 439,099 r = -.02***

Income: Studies: 340 (mainly EVS, ISSP, WVS)

N = 390,902 r = -.04***

99

BLUE COLLAR WORKERS

Public deficit

Criticism of the government

Associations to taxes of entrepreneurs, civil servants, students, white, and blue collar workers (explained variance: Dimension 1 = 38%; Dimension 2 = 30%; Dimension 3= 17%; Kirchler, 1998)

Dim

ensi

on

2

Dimension 3Dimension 1

1.50

-.690 -.80

0.86

-1.36

-.77

0

.89

Lack of clarity Technical tax termsEconomic regulator

STUDENTSENTREPRENEUERS

Not categorized

BureaucracyNames of politicians and political institutions

Punishment and disincentive

Tax evasionNecessary evil

Social securityWHITE COLLAR WORKERS

Social welfareSocial justice

CIVIL SERVANTS

Salary and income

Financial loss

Criticism of politicians

Instrument for politicians

Public goods

Public constraintSTUDENTSENTREPRE

NEUERS

WHITE COLLAR WORKERS

10

Structural relationship between duration of running a business, age of respondents, perceived limitation of freedom, attitudes towards taxes, tax morale and intention to evade (Kirchler, 1999)

Duration of business in years

Age

Intention to evade

Tax morale

Attitudes towards taxes

Perceived limitation of

freedom

-.18

.36

.52

.44

-.36

Lozza, E., Kastlunger, B., Tabliabue, S. & Kirchler, E. (2013). The relationship between political ideology and attitudes

toward tax compliance: The case of Italian taxpayers

Research on tax behaviour has given little attention to taxpayers’ political affiliations when studying attitudes towards tax evasion. The present paper aims to explore the relationship between political party preferences and attitudes toward tax compliance within the “slippery slope framework”. Results deriving from mixed-method research conducted in Italy with self-employed taxpayers show significant differences between left-leaning and right-leaning taxpayers in terms of attitudes toward tax evasion. Findings describe two different paths, one for each political affiliation, that might lead to higher levels of tax compliance, as well as different meanings and values attached to tax behaviours. In particular, left-leaning voters express higher voluntary cooperation and show reactance to power of authorities, whereas right-leaning voters, who express higher levels of enforced tax compliance, are more sensitive to enhancement of their voluntary cooperation, by increasing their trust in authorities and institutions.

Trust Legitimatepower

Coercivepower

Enforcedcompliance

Voluntarycompliance

Tax evasionN=108 N=164 Tax evasion

Enforcedcompliance

Voluntarycompliance

Trust Legitimatepower

Coercivepower

Left Right

.67** .45** .62** .35**

-.26*-.25*

.28** .12 .30** .16*

-.18*

-.10

-.43** .13

.42** -.29* .18* .39**

-.13

-.12

-.10 .24*

Lozza et al. (2013): Political party preference and tax behavior

Mental accounting of self-employed taxpayers

On the mental segregation of the net income and the tax due

Stephan Muehlbacher & Erich KirchlerUniversity of Vienna

Faculty of Psychology: Department of Applied Psychology:

Work, Education, Economy

Mental accounting of taxpayers

GROSSINCOME

NETINCOME TAX

GainsLosses

Value+

-x

-

Should I evade taxes?

GainsLosses

Value+

-x

-

Should I evade taxes?

Integration

Segregation

Study 1: Interviews with self-employed

taxpayers

Field manual

1. Topic of this interview is money management. Please tell me something about your revenues and expenditures in your company. How are these composed and how do you administer them?

2. When you have mentioned your expenditures you have mentioned (did not mention) taxes. Please tell me about your experiences with taxes and how you are handling them.

3. If you think about the very beginning of your career als self-employed: what has changed since then regarding you money mangement?

4. Did anything change regarding how you administer your taxes?

5. How and when in your career did you first deal with taxes and their administration?

6. If you think about your everyday business: in which situations are you confronted with tax issues? When do taxes cross your mind?

Main findings

• 90 Statements expressing segregation of net income and taxes:– „Actually taxes are not really costs for my company, because we are

only taking them and administer them for the government.“ – „The money I pay as taxes has never been my money“– „I put the money for paying taxes on an extra bank account“

• 16 Statements expressing integration of net income and taxes:– „When I earn something I do not really think about the taxes i‘ll have to

pay. “– „I cannot pay them more than half of my income [as taxes]! “

Study 2: Construction of a scale to measure

integration vs segregation

Purpose

– Developing a scale to measure mental integration vs. segregation of net income and tax liability

– Exploring antecedents and consequences of mental integration

Scale development

• 17 raw items for the mental accounting scale– 37 statements from own interviews – 5 statements from interviews by Adams and Webley (2001)– Revised and summarized by a group of 5 experts

Resulting in 17 items to form a 7-point Likert-scale

• Excluding 7 items– 4 items were dropped due to ceiling-effects (Md=1 or 7)– 3 items were due to low inter-item correlations (all r<.3)

• Factor analysis with remaining 10 items

Scale development: Factor loadings(oblimin rotation)

Items Iλ=3.18

IIλ=1.34

IIIλ=1.07

Mma08When planning my sales at the beginning of a year, I already think about how much the fixed costs and the tax liability will be

,798 ,118 -,084

Mma07 When I earn some money I automatically think about the incidental taxes ,690 ,000 ,146

Mma06 When doing my cost estimations I am always thoroughly computing how much exactly remains for myself after paying my fixed expenses and income tax

,667 -,042 ,202

Mma12 I know relatively well, how much money I have to put aside for paying my income tax ,657 ,042 -,124

Mra02 I always put some money aside for the case the tax office claims additional payments ,521 -,269 ,086

Mma09Instantly after a customer has paid me, I am mentally deducting roughly the amount I will have to pay as taxes later on

,501 -,277 -,050

Mra04 I think it is essential to put aside an appropriate amount of money extra for the income tax ,013 -,800 -,054

Mra03In my experience it makes sense to have a separate bank account to put aside something for the income tax

,050 -,770 ,071

Mbn17 I never really look upon the money I pay as income tax as my money ,133 ,191 ,841

Mbn15The income tax virtually is money we are looking after for the government, my customers are paying it

-,127 -,231 ,765

Scale development: Labeling and reliabilityItems I

λ=3.18II

λ=1.34III

λ=1.07

Mma08When planning my sales at the beginning of a year, I already think about how much the fixed costs and the tax liability will be

,798 ,118 -,084

Mma07 When I earn some money I automatically think about the incidental taxes ,690 ,000 ,146

Mma06 When doing my cost estimations I am always thoroughly computing how much exactly remains for myself after paying my fixed expenses and income tax

,667 -,042 ,202

Mma12 I know relatively well, how much money I have to put aside for paying my income tax ,657 ,042 -,124

Mra02 I always put some money aside for the case the tax office claims additional payments ,521 -,269 ,086

Mma09Instantly after a customer has paid me, I am mentally deducting roughly the amount I will have to pay as taxes later on

,501 -,277 -,050

Mra04 I think it is essential to put aside an appropriate amount of money extra for the income tax ,013 -,800 -,054

Mra03In my experience it makes sense to have a separate bank account to put aside something for the income tax

,050 -,770 ,071

Mbn17 I never really look upon the money I pay as income tax as my money ,133 ,191 ,841

Mbn15The income tax virtually is money we are looking after for the government, my customers are paying it

-,127 -,231 ,765

I. Mental Accounting (6 items, α = .76, M=4.11, SD=1.35)

I know relatively well, how much money I have to put aside for paying my income tax

II. Real Accounting (2 items, α = .53, M=4.12, SD=1.67)In my experience it makes sense to have a separate bank account to put aside something for the income tax

III. Tax money ≠ my money (2 items, α = .52 , M=4.10, SD=1.74)I never really look upon the money I pay as income tax as my money

Scale development:Correlations between sub-scales

Mental accounting

(α = .76)

Real accounting

(α = .53)

tax money ≠ my money

(α = .52)

Mean score

(α = .75)

Mental accounting

- r = .69**

Real accounting

r = .39** - r = .76**

tax money ≠ my money

r = .21** r = .22** - r = .70**

Note: * p ≤ .05, ** p ≤ .01

Antecedents of integration vs segregation

Mental accountingReal

accountingtax money ≠ my money

Mean score

Branches F(1,167) = 1.45 F(1,167) = 2.06 F(1,167) = 0.72 F(1,167) = 1.24

Staff size rho = -.20** rho = -.03 rho = -.09 rho = -.15*

Sex t(170) = -0.21 t(170) = 0.38 t(170) = 1.61 t(170) = 0.92

Income rho = .10 rho = .17* rho = -.02 rho = .11

Experience rho = -.03 rho = -.00 rho = .05 rho = .02

Age r = .06 r = .10 r = .17* r = .17*

Note: * p ≤ .05, ** p ≤ .01

Consequences of integration vs segregation

• Tax morale (motivational postures, Braithwaite, 2003)

• positive: Deference (4 items, α = .75)• negative: Defiance (6 items, α = .46)

• Reactance (Kirchler, 1999, 2 items , r = .53**, α = .69)

• Tax evasion scenarios (Kirchler & Wahl, 2010, 5 items, α = .79)

• Tax avoidance scenarios (Kirchler & Wahl, 2010, 5 items, α=.61)

• Self reported tax behavior (Have you ever tinkered with the

idea to evade taxes? yes/no)

* p ≤ .05** p ≤ .01

Consequences ofintegration vs segregation

Mental accountingReal

accounting

Income tax was never my

moneyMean score

Deference (positive) r = .20** r = .17* r = .23** r = .28**

Defiance (negative) r = .00 r = .05 r = -.03 r = .01

Reactancemotives r = -.15* r = .04 r = -.13 (p=.08) r = -.11

Note: * p ≤ .05, ** p ≤ .01

Consequences of integration vs segregation

Tax Evasion Scenarios

B SE (B) β

Mental accounting – 0.23 0.12 – .17*

Real accounting 0.15 0.12 .11

Tax money ≠ my money 0.04 0.11 .03

Mean Score - 0.03 0.11 - .02

Note: All predictors are z-transformed, all tolerance values > .82, * p ≤ .05, ** p ≤ .01

Consequences of integration vs segregation

Self reported tax behavior (Have you ever tinkered with the idea to evade taxes? yes/no)

β SE (β) Odds-ratio Wald test

Mental accounting -0.47 .20 0.63 5.29*

Real accounting -0.27 .20 0.77 1.71

Tax money ≠ my money 0.09 .19 1.09 0.21

Mean Score - 0.44 .19 0.64 5.64*

Note: All predictors are z-transformed, all tolerance values > .82, * p ≤ .05, ** p ≤ .01

Consequences ofintegration vs segregation

Tax Avoidance Scenarios

B SE (B) β

Mental accounting 0.34 0.10 .26**

Real accounting 0.29 0.10 .23**

Tax money ≠ my money -0.04 0.10 -.03

Mean Score 0.43 0.10 .33**

Note: All predictors are z-transformed, all tolerance values > .82, * p ≤ .05, ** p ≤ .01

Summary of findings

NETINCOME TAX

Age

Income

Staff size

Tax morale

Reactance

Tax evasion

Tax avoidance

+

+

-

+

+

-

-

Segregation