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://ucrisportal.univie.ac.at/en/publications/d316d1bd-2e31-4837-b6cf-91d494c59fcc