Abstract Much of the literature that examines the effect of tax incentives on decisions implicitly assumes that taxpayers have accurate knowledge of their marginal tax rate. Several studies have addressed taxpayer awareness of their rates and have found this awareness lacking. However, the conclusions drawn from these previous studies about the taxpayer's actual rate are all constrained by data limitations. The present study overcomes these previous limitations by employing a two-pad survey method that elicits both perceptions and tax return information. One hundred and eight respondents completed this two-part survey. Results of the survey suggest that taxpayers' perceived marginal tax rates differ significantly from their actual rates. Further, this result holds even when a more liberal definition of accuracy is employed. An examination of the effect of several variables on the degree of misperception suggests that those taxpayers who have higher income, who do not receive preparation assistance, and who use professional consultants for investment advice are more accurate in estimating their rate. Implications of these findings for experimental research are discussed.
Rupert et al. (Sat,) studied this question.