Pauline Downer
Memorial University of Newfoundland
Alan Macnaughton
University of Waterloo
Jeffrey A. Pittman
Memorial University of Newfoundland
Abstract: We examine the accuracy of taxpayer perceptions of their marginal tax rates. We estimate that the mean absolute value of the difference between their actual and perceived marginal tax rates is about 12 percentage points, implying that these large perception errors may undermine optimal decision-making. This paper also reports evidence on the potential determinants of perception inaccuracy. Consistent with our predictions, we find that perception errors are smaller for persons with higher net income; experiencing certain tax situations; expecting a tax refund; having more dependent children under seven years of age; who consider the tax implications of their financial decisions to be important; and who are confident in their estimate of their marginal tax rate. However, we find no evidence that having a professional consultant or self-reporting familiarity with the tax system affects the accuracy of persons' perception of their tax status.
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