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People are willing to lose money to avoid paying taxes

at 01:43 PM ET, 01/19/2012


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Some people in the United States are so loath to pay taxes that they’re willing to spend an even greater sum of money to avoid them. It’s a phenomenon that behavioral scientists call “tax aversion”: an irrational desire to avoid taxes that goes beyond simply trying to avoid monetary costs.

In a new article in the Journal of Marketing Research, Abigail Sussman and Christopher Y. Olivola found ample evidence of tax aversion, particularly among individuals who aligned themselves with anti-tax political parties. Their findings run counter to the prevailing assumption that individual attitudes toward taxes are mainly motivated by monetary concerns. Here’s how they describe it:

In Experiment 1, we found that participants were more willing to travel to a distant store for a tax-free discount than for a larger discount that was unrelated to taxes. Experiment 2 demonstrated that they were also willing to spend more time waiting in line for an “axe-the-tax” sale than for an equivalent sale that was unrelated to taxes. Similarly, the smallest discount for which they were willing to spend a given amount of time waiting in line was lower for an “axe-the-tax” sale than it was for a tax-unrelated sale. In Experiment 3, we found that participants strongly preferred investing in tax-exempt bonds over taxable bonds that were equally profitable – a result that may help explain the puzzling (and suboptimal) tendency for households with low marginal tax brackets to purchase tax-exempt bonds.

Unsurprisingly, Sussman and Olivola found that tax aversion was “most prevalent among those identifying with political parties that generally favor less taxation,” suggesting that political and ideological attitudes can distort rational economic behavior. However, they found tax aversion generally softened when their research participants were asked to list the “first three examples of positive uses of your tax dollars” that they personally approved of before beginning the experiment. They conclude that such findings suggest that policymakers who want to combat anti-tax attitudes could try to remind voters of broadly popular, positive uses of taxpayer money.

 
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