The Effect of Federal-State Conformity on Taxpayer Decisions

Abstract

We conduct an experiment asking participants to choose to purchase either a traditional or hybrid car to examine how federal-state conformity of tax incentives impacts the decisions of taxpayers. We also examine perceptions of taxpayers surrounding federal-state conformity. Consistent with theory related to the effects of information environment and using an experiment in which taxpayers are asked to evaluate tax incentives related to a purchase decision between a traditional and hybrid car, we find that conformity is a significant factor in increasing the propensity to take advantage of the tax incentive. Specifically, we find that participants with simple and conforming federal-state incentives are more likely to take advantage of the tax incentive than with complex and conforming federal-state incentives. In addition, the effects of conformity between federal and state incentives suggest that participant perceptions of the federal system were heavily influenced by the actions of the state.

Citation

Morrow, M.L. and Rupert, T.J. (2015), "The Effect of Federal-State Conformity on Taxpayer Decisions", Advances in Taxation (Advances in Taxation, Vol. 22), Emerald Group Publishing Limited, Leeds, pp. 37-73. https://doi.org/10.1108/S1058-749720150000022001