Mental accounting of income tax and value added tax among self-employed business owners

Author(s): Jerome Olsen, Matthias Kasper, Christoph Kogler, Stephan Mühlbacher, Erico Kirchler
Abstract: Mental accounting describes a series of cognitive operations that help organize financial activities and facilitate money management. Self-employed taxpayers who make use of a separate mental account for future income tax payments or collected value added tax (VAT) might find it easier to declare their taxes correctly than taxpayers who do not. This study used a questionnaire to investigate whether self-employed taxpayers (N = 350) use mental accounting to manage their income tax and VAT obligations, whether mental accounting relates to tax knowledge, business and personality characteristics, and to what extent mental accounting is related to intended tax behavior. Our results reveal that some taxpayers mentally segregate taxes from turnover (segregators) while others do not (integrators). We found small differences in mental accounting between income taxes and VAT. Moreover, confirmatory factor analyses suggested that tax knowledge and mental accounting are distinct constructs. Segregation of taxes was related to lower impulsivity and more positive attitudes toward taxation. Individuals who stated they segregate taxes due from turnover more often claimed to run financially prosperous businesses. Mental accounting was not related to intentions of evading taxes, but individuals with higher mental accounting scores reported more pronounced levels of tax planning. While our research design does not allow drawing causal inferences, these findings could suggest that increasing self-employed taxpayers' ability to organize their financial activities might be a promising strategy to strengthen the competitiveness of their businesses.
Organisation(s): Department of Occupational, Economic and Social Psychology
External organisation(s): Tulane University, Tilburg University
Journal: Journal of Economic Psychology
Volume: 70
Pages: 125-139
No. of pages: 15
ISSN: 0167-4870
DOI: https://doi.org/10.1016/j.joep.2018.12.007
Publication date: 01-2019
Peer reviewed: Yes
Austrian Fields of Science 2012: 501001 General psychology
Keywords
ASJC Scopus subject areas: Economics and Econometrics, Sociology and Political Science, Applied Psychology
Portal url: https://ucris.univie.ac.at/portal/en/publications/mental-accounting-of-income-tax-and-value-added-tax-among-selfemployed-business-owners(d316d1bd-2e31-4837-b6cf-91d494c59fcc).html