Working Paper Series, Center for Fiscal Studies,
Uppsala University, Department of Economics

Abstract: The objective of this paper is to study if taxpayers behave in a loss averse manner when filing their tax returns. This is important for tax design but also for understanding human behavior in general. The predictions of prospect theory can be contrasted to those of expected utility theory. We use data for 3.6 million Swedish taxpayers for the income year 2006. Our research method is quasi-experimental using a regression kink and discontinuity approach. We also use an alternative instrumental-variables approach. There is strong evidence of loss aversion. We estimate the coefficient of loss aversion using actual behavior and the instrument-variables approach. Our estimate is very close to the estimates reported in the experimental literature.

Keywords: loss aversion; prospect theory; tax compliance; quasi-experiment; regression kink; regression discontinuity

JEL-codes: C21; C26; D03; H24; H26

43 pages, November 29, 2011

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Published as

Per Engström, Katarina Nordblom, Henry Ohlsson and Annika Persson, (2015), 'Loss evasion and tax aversion', American Economic Journal: Economic Policy, vol 7, pages 132-164

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