What do taxpayers prefer: Lower taxes or a better year-end position? A research note |
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| Institution: | 1. Hershel Anderson Endowed Professor, Department of Accounting, G. Brint Ryan College of Business, University of North Texas, Denton, TX 76201, United States;2. Department of Accountancy and Business Law, Cameron School of Business, University of North Carolina Wilmington, Wilmington, NC 28403, United States;1. Mendoza College of Business, University of Notre Dame, Notre Dame, IN 46556, United States;2. Ohio University College of Business, Ohio University, Athens, OH 45701, United States;1. Lynn Pippenger School of Accountancy, Muma College of Business, University of South Florida, 4202 East Fowler Ave., BSN 3403, Tampa, FL 33620, United States;2. Department of Accounting and Finance, Paul College of Business and Economics, University of New Hampshire, 11 Garrison Ave., Durham, NH 03824, United States;1. Dhaliwal-Reidy School of Accountancy, University of Arizona, 1130 E. Helen St., PO Box 210108, Tucson, AZ 85721, United States;2. LeBow College of Business, Drexel University, Philadelphia, PA 19104, United States;3. Neeley School of Business, Texas Christian University, Fort Worth, TX 76129, United States;1. Harbert College of Business, Auburn University, 345 Lowder Hall, Auburn, AL 36830, USA;2. College of Business, Colorado State University, Rockwell Hall Room 256, Fort Collins, CO 80523, USA |
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| Abstract: | What do people prefer, lower taxes or better year-end position? To our knowledge this is the first study that examines which component of individuals’ tax outcome, total tax or year-end position, drives their perceptions regarding their tax outcome as well as the legislation responsible. Based on prior economic and tax literature, especially borrowing from prospect theory and mental accounting, we predict that people are more likely to anchor on their prepayment position rather than on the total taxes in forming their perceptions about their tax position and their views on tax law changes. Based on a sample of 98 U.S. taxpayers we find that our predictions are supported. Specifically, we find that (1) people prefer a better year-end position than lower taxes; and (2) this preference is consistent regardless of whether they are in a refund or tax due position. Implications for public policy and accounting practitioners are also discussed. |
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| Keywords: | Taxpayer judgement Prepayment position Mental accounting Prospect theory Political party identification |
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