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Journal of Business Ethics

, Volume 126, Issue 4, pp 631–647 | Cite as

Contextual and Individual Dimensions of Taxpayer Decision Making

  • Jeffrey Cohen
  • Gil B. ManzonJr.
  • Valentina L. Zamora
Article

Abstract

We examine whether a taxpayer’s decision to choose a taxpayer-favorable (vs. a taxpayer-unfavorable) characterization of income is associated with contextual and individual dimensions of that decision. Using a 2 × 2 factorial experimental design, we manipulate the prevailing social norm on whether there is a general belief that a specific form of income should be characterized as a capital gain (taxed at a lower tax rate and hence taxpayer favorable) or as ordinary income (taxed at a higher tax rate and hence taxpayer unfavorable), and the group affiliation on whether the individual is making a tax characterization decision as a sole proprietor or as a member of a group practice. Moreover, we measure participants’ fairness perception of characterizing the income as capital gains versus ordinary. We study the decisions of 180 graduate business and accounting students from two US business schools to explore these dimensions using a tax-ambiguous income situation. Results indicate that both contextual and individual dimensions impact taxpayer decisions. Specifically, the social norm and fairness perception of characterizing income as capital gains affects the likelihood of choosing such a characterization. Being a sole proprietor or a member of a group practice does not have any significant main effect. However, relative to all other conditions, taxpayers are most likely to characterize income as capital gains when both the social norms are for capital gains characterization and when the taxpayer is a member of a group practice. Results remain largely robust to a variety of alternative explanations. We conclude the paper with a discussion of our findings and their implications for tax policy, enforcement, and research.

Keywords

Taxpayer decisions Social norm Group affiliation Fairness perception Income characterization 

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Copyright information

© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  • Jeffrey Cohen
    • 1
  • Gil B. ManzonJr.
    • 1
  • Valentina L. Zamora
    • 2
  1. 1.Accounting DepartmentCarroll School of Management Boston CollegeChestnut HillUSA
  2. 2.Department of Accounting, Albers School of Business and EconomicsSeattle UniversitySeattleUSA

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