1995 JATA Conference
Experimental Methods as Applied
to Problems in Taxation
Volume 17, Supplement
Income Tax Subsidies and Research
and Development Spending in a Competitive Economy: An Experimental
Study
Jon S. Davis, Herman C. Quirmbach, and Charles W. Swenson
An Empirical Investigation of
Taxpayer Awareness of Marginal Tax Rates
Timothy J. Rupert and Carol M. Fischer
The Influence of Contextual
Factors on IRS Agents' Assessments of Taxpayer Negligence
Michael L. Roberts
Prior Knowledge, Information
Search Behaviors, and Performance in Tax Research Tasks
C. Bryan Cloyd
Income Tax Subsidies and Research
and
Development Spending in a Competitive
Economy: An Experimental Study
Jon S. Davis, Herman C. Quirmbach, and Charles W.
Swenson
Abstract
The present study extends earlier work which has studied
the impact of tax subsidies on R&D spending (e.g. Berger 1993);
Tillinger 1991) by introducing theoretical predictions of the effects
of tax subsidies in a competitive game-theoretic environment by
testing these predictions using experimental economic methods. Two
types of subsidies are examined: a uniform subsidy and a subsidy
given to only half of the participants (reflecting local and international
environments, respectively). These effects are evaluated in both
a stylized setting with full information, and in a more realistic
setting where players have incomplete information on other players'
tax status and levels of R&D investments. In addition, both
full appropriability (where the innovators capture all rents from
the discovery) and partial appropriability (where non-innovators
capture a portion of the rents) are examined. Despite the size of
the subsidy, our equilibrium predictions were that R&D spending
would increase by a much smaller percent than the percent decrease
in R&D cost (due to the subsidy). This effect was found in all
of the experiments. Further, experimental results generally supported
our theoretical prediction that an uneven tax subsidy across investors
would result in a decline in R&D investments vis-a-vis a setting
where an equal tax subsidy was provided to all. Finally, contrary
to predictions, we found that the subsidy resulted in a larger increase
in R&D in settings of partial appropriability than in settings
of full appropriability. Top
An Empirical Investigation of
Taxpayer
Awareness of Marginal Tax Rates
Timothy J. Rupert and Carol M. Fischer
Abstract
Much of the literature that examines the effect of
tax incentives on decisions implicitly assumes that taxpayers have
accurate knowledge of their marginal tax rate. Several studies have
addressed taxpayer awareness of their rates and have found this
awareness lacking. However, the conclusions drawn from these previous
studies about the taxpayer's actual rate are all constrained by
data limitations. The present study overcomes these previous limitations
by employing a two-part survey method that elicits both perceptions
and tax return information. One hundred and eight respondents completed
this two-part survey. Results of the survey suggest that taxpayers'
perceived marginal tax rates differ significantly from their actual
rates. Further, this result holds even when a more liberal definition
of accuracy is employed. An examination of the effect of several
variables on the degree of misperception suggest that those taxpayers
who have higher income, who do not receive preparation assistance,
and who use professional consultants for investment advice are more
accurate in estimating their rate. Implications of these finding
for experimental research are discussed. Top
The Influence of Contextual
Factors on
IRS Agents' Assessments of Taxpayer Negligence
Michael L. Roberts
Abstract
This paper investigates the subjective judgments of
IRS Revenue Agents about assessment of taxpayer negligence. Interviews
with a designated IRS expert led to the development of a theory
of taxpayer culpability based on circumstantial evidence. A series
of 16 cases was developed involving variations of four factors that
Culpability Theory and the IRS expert suggest might effect Revenue
Agents' decisions to assess a negligence penalty. The four factors
were: the educational level of the taxpayer, the size of the audit
adjustment, the number of years involved, and whether or not the
taxpayer was represented by a CPA. One hundred Revenue Agents participated
in the experiment. The results demonstrate the influence of three
of the four hypothesized factors, and support the hypothesized interaction
effect as well. In general, the size of the audit adjustment had
the largest single impact on the decision to assess a negligence
penalty and representation by a CPA had the least impact. Top
Prior Knowledge, Information
Search
Behaviors, and Performance in Tax
Research Tasks
C. Bryan Cloyd
Abstract
This study examines the effects of prior knowledge
on the information search and evaluation behaviors of tax professionals
performing a complex tax research task. Despite the importance of
tax research tasks to practice, very few studies have investigated
the determinants of performance in this task. The results of this
study indicate that prior knowledge of relevant tax rules affects
(1) the information search strategies tax professionals use, (2)
the amount of relevant information located, the attention (in terms
of time) paid to relevant information, and the speed with which
this information is retrieved, and (3) the ability to discriminate
between relevant and non-relevant information. Further, after controlling
for the effects of prior knowledge, the results suggest that particular
search strategies are related to overall research effectiveness.
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