ECONOMIC BEHAVIOR INFLUENCING
TAXATION PERCEPTION VALUE
Abstract:
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.
Literature:
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nascoste che influenzano le nostre decisioni”,
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(1979), “Prospect Theory: An Analysis of Decision Under Risk”, Econometria,
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2003
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:
A:B=A1:B1
|
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.
6. Conclusions
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),
Q.D.E.
Luca Scaini
