ECONOMIC BEHAVIOR INFLUENCING TAXATION PERCEPTION VALUE
Accordingly with main authors of behavioral economics (Kahnemann-Tversky, 1979, 1981; Ariely, 2008; Slovic 1982; Duncan Luce and Raiffa, 1957; Gibbson, 1992), we consider that behavior can be irrational but logically or statistically and probabilistically previewed on the base of analysis of precedent cases and probabilistic happenings, and this is our personal belief. Taxation should be looked and seen finally more like “individual social action of purchase something without any formal alternative”, more than simple duty (i.e. military service has economic implication for a subject, but it is to be seen more like influencing social sphere, just like having or not a passport or respecting civil laws). If we could look toward action of payment of taxes like an individual economic behavior, then we could state that such action is ruled by behavioral economic rules.
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Body of Article
1. Theoretical Proposal: problems connected with behavioral approach
Considering taxation like an institution and mandatory payment (in common we refer under this word “taxation” to fees, taxes and contribution”, regardless of the formal difference that may anyway influence the practice of our theoretical proposal), it is not possible to refer to this accordingly with behavioral rules of economy, so the intention to change the point of view is not servant to our goal, but servant to a different perspective on a certain action, to investigate it under the focus of social sciences and to suggest a more profitable action less focalized on its cost and more on its services’ value.
Moreover we are not going to discuss about ethical or functional value or importance of taxes, but we’re focalizing on the action itself and on the motivation of this action, mostly investigating it throughout eyes of people paying (buyer).
We believe this practice is more individual then social and should be related to a non-social behavior of economy, very rarely find, anyway.
Payment of taxes is, moreover, sort of economic and financial action, even though pretty unusual, and this is ruled and probably better understood if considered like a purchase action.
Problem may be seen under different lights, all probably true, and rebuiltable under a different angle:
· Taxes are a payment for services and not for goods, so there is no direct connection with purchasing;
· Even such services are not always directly connected with the act of payment (like for insurance) or with any tangible result (paying for welfare but will result after decades of work, after retirement);
· Often people pay for something in order to obtain the opposite (people pay for health and hope not to visit an hospital, for weapons, but hope in peace);
· State has no competitors and taxes, often, have no clear alternative. In some very liberistic and market-oriented system, people may choose among different alternatives, like private insurances, private social expenses or state offered or warranted ones.
2. Theoretical Proposal: reasons of considering the proportion taxes:purchase=service “x”:good
So, we are stating that considering taxes like sort of atypical payment for goods or services, where there is no freedom of choice and mostly no direct consequences between purchase and good/services paid and a kind of purchase without social interaction (the service purchased is not shared with other people of the same social group), it is considerable a sort or behavior that has very little similarity in economy.
We also state that this is a behavior connected with economy, since there is effectively a payment for something and the consequential purchase –in some form- of something related to such financial value and by consequence it (such “payment”) must be considered like such action, with same motivation and consequences.
Under this point of view, motivation must be discovered, pumped and shared with people paying and purchasing something, just like in every other economic and market field.
We can simplify the whole matter writing it under the form of a proportion:
Here we state that A is any purchase and B is any good or service purchased, A1 are taxes (seen like purchase of some sort of service, call it a duty or a choice) and B1 is what taxes are paid for. The matter stays in B1, seen like the profit or gain of a certain action A1, with a cost.
We believe that B1 is not adequate to Balance the total cost (psychological and real, Trevisani, 2001, 2003) represented by A1, whilst B is motivating in a proper way A, via stimulation of people’s motivation center. It was already explored by more authors in Microeconimcs (Kahnemann, Tversky 1979; Morgensten, Thompson, 1978; Morgensten, Von Neuman, 1944; Kahnemann, Slovic, Tversky, 1982).
Now, we should focalize on these questions:
· Any purchase happens why?
· What makes it happen and influences its success or not?
The same concept, discovered, developed and used for market purchases, must be related also to a non-good and non-willed cost (tax), creating a correct motivation, in order to avoid the competitor’s offer, present, latent and dangerous for every business.
3. Theoretical Proposal: pros of considering how behavior influence A->B , it may influence A1->B1
Now, referring to behavioral economy, marketing, and other connected sub-sciences, such as retail and consumer psychology, is well-known and proofed a tight connection between perceived value of a good as main motivator of some purchase (Brusa, 2008; Kahnemann, Tversky 1979; Morgensten, Thompson, 1978; Morgensten, Von Neuman, 1944; Kahnemann, Slovic, Tversky, 1982 ).
The action’s cost (A) is split between real cost (monetary) and psychological cost (Trevisani, 2001, 2003): it is the effort to reach the selling place, or the cost of separation from another good –replaced- or from some other that won’t be purchased by lack of money, or different other possibilities.
Good “B” must cover with its inner value (perceivable by buyer) all such costs to represent a gain and not a loss, otherwise the only way to perform that action “A” is represented by a need or a total lack of other choices, including a non-purchase (“A minus 1”).
We shortly remark that in marketing, meaning “every action of putting a product on a market” (whatever product is, real or service and whatever market it is, place or group of people), perceptions are more important than reality (Kotler, 200912, pg 228).
So, the second case A1->B1 is connected with taxation, and we are going to demonstrate it now.
It is not senseless also to remind that a perceivable value is not represented by price.
In case of lack of experience of a certain good and in case of lack or promotion of such good, price may surely represent a valid hint (Pellicelli, 20105), but this situation is very rarely find, so price indicates simply a cost (or a sum of money) that a certain market player is able to spend to obtain something: it is gain.
4. Theoretical Proposal: demonstration of taxes as purchase of goods without perceivabe value
In our proportion, we stated that “B” is the good represented by a price that a buyer must spend through an action of purchase “A” to gain all the related perceived values.
In fact, as a cost is made by two different and related sub-costs (real, or monetary and psychological), as gain is made by two different forms of gain (Trevisani, 2001, 2003).
The two forms of gain are: real (or monetary gain), mostly represented by its price, and telling to buyer how much is the inner value of something, and psychological value.
The psychological value represents all the hidden gains that a buyer will acquire through a certain purchased object (for example brand works like this, adding sort of emotional value to a certain object, like a bag, and making it more desiderable and expansive).
The psychological value represent the balance of a monetary cost when it is impossible or just too hard to evaluate the physical value of a good (like a branded garment, or bag).
“A” as an action of purchase happens whenever “B” can represent to the actor of “A” (buyer) a system of gains superior than the whole system of costs (or loss).
“A1” as an action of payment and so purchase of something happens in every condition (of loss or gain) being “A1” compulsory and mandatory, despite of what “B1” represents for an actor of “A1”.
Every good or service “B” purchased on the market through action “A” has a cost (even when it is “free” or “gratis”, due to its psychological cost) balanced by its perceived value and transformed into a purchase if Total Gains of B> Total Costs of A, whilst the action “A1” leads to a purchase “B1” that not referred to any perceived gain (real or psychological) in any case, due to its mandatory aspect.
In fact, being mandatory, there is no need to offer any perceived value of “B1”, States seems to believe.
This approach is actually wrong, considering the proportion offered and the behavioral economy’s point of view of a tax payer (who is really a state service buyer) who wants to sustain the costs “A1” spending his money for a good or service “B1” that must be seen like able to balance “A1” and possibly offering a gain, like for every other action “A” and good or service “B”.
Problem, so, lies in:
· a wrong approach to what tax is and how it must be seen,
· in a lack of knowledge of psychology of people seen like buyers,
· in a lack of marketing strategy for States and taxes,
· in a lack of understanding of how mind works processing A1->B1, non dissimilar from A->B.
5. Practical proofs in actual context, and possible corrections
We want to investigate every single point in short, to concentrate on a possible change of point of view and consequential solution that could be practically followed.
As for the wrong approach on what tax is and how it must be seen, can be easily corrected thanks to the behavior economy theory and game theory (Kahnemann, Tversky 1979; Morgensten, Thompson, 1978; Morgensten, Von Neuman, 1944 ) and approaching the two main players under a microeconomical doctrine like company offering good/service (State) and consumers buying goods/services (citizen), in order that both pars may obtain a kind profit (non just financial).
As for the lack of knowledge of psychology of people seen like buyers, it is connected easily to the previous point, since the main player understands that is offering something in a competitive market and in competition with something else, so trying to create sharing values and perceivable ones. State should ask itself: “how many citizens/buyers understand what they pay for/buy, what the value/gain and how to make the action (A1 as well as A) clear and desiderable compared to B1 as well as to B?” It is a concept derivated by game’s theory (Kahnemann, Tversky 1979; Morgensten, Von Neuman, 1944; Duncan Luce, Raiffa, 1957; Gibbons, 1992) and it shows a good way to practice and proof it.
It reveals a lack of marketing strategy for States and taxes, a total imposition (literally) without offering any perceived gain, and in many cases, offering services “B1” clearly below basic expectation.
This again proof that in the actual context there is lack of understanding, or even total misunderstand, how mind works processing A1->B1, non dissimilar from A->B. In that market case (A->B) there is third player on the market, and, completely unseen, it is present also in the service’s market case A1->B1.
Such competitors called “tax evasion” is really representative of all goods and services “B” that offer a better perception of value than “B1”, being the action “A” less expansive (in the whole real and psychological evaluation) than “A1”, even risking legally and criminally through evasion or non-payment.
We stated above that real cost of “A” is balanced by psychological gain of “B”, so for the equivalent A1->B1. Therefore, the psychological cost of “A” is balanced by the real gain of “B”, so for the equivalent A1->B1.
Taxes offers no services with a perceivable value (psychologically) and the psychological cost of A1 offers not real gain in B1 therefore the action of evasion meets no obstacles from any real gain in the real value of B1. We could say, theoretically and by what we observe it also practically, that branded clothes, exotic holydays, fancy life-style count more than safe cities, services running properly, healthy medical service and good state education.
State forgot that competition involves them not only and always less in terms of wars, or international political competition, but economical, financial, and in terms of more services better offered.
It can be shortly referred some example of anti-evasion campaign forwarded by some State: in Italy, during strong crisis in years 2011-2012 the message showed different services with evident problems such as a motorbiker policeman without gasoline pushing his vehicle, some nurse and doctor without any stretcher, teachers without books.
Well accordingly with important researches leaded by authors like Kahnemann, Tversky 1979; Slovic, 1977; Kahnemann, Slovic, Tversky, 1982; Morgensten, Thompson, 1978; Morgensten, Von Neuman, 1944, Trevisani, 2001, 2003; Duncan Luce, Raiffa, 1957; Gibbons, 1992) is probably wrong to show the negative effect of something to demonstrate what should be done. It creates the “fear effect”, and it is known to be a motivation for irrational actions, such as evasion, in this specific case (Ariely, 2008; Scaini, 2012).
What could probably results more effective is to explain objectively and not persuasively (for some difference, cfr. Pellicelli, 20105), the effect of payment, better than the effect of non-payment, forcing the target of such message to elaborate the opposite effect of payment, especially because it is totally under discussion that such target (buyer of services = payer of taxes) can really desire that such services work properly, being index of a non desiderable situation (lack of health -> hospital; lack of education -> school; lack of security -> police, lack of peace -> army).
In the end it seems useless – and even having a counter-effect- saying that “if u do not pay happens this (bad consequences)”.
It would be better. Accordigly with experimentation under games theory (Duncan Luce, Raiffa, 1957; Gibbons, 1992 ) “if you pay happens something positive”.
Make it a positive economy for positive results, or, as stated “Would you be happier if you were richer?” (D.Kahneman, A.Krueger, D.Schkade, N.Schwarz, A.Stone, 2006),