Explorations into Behavioral Phenomena

Taxation impacts social welfare in an intricate manner. Currently employed tax instruments throughout the world possess inherently different salience characteristics. Tax salience effect refers to the optimization error occurring when agents do not fully account for taxes that do not appear in posted prices. Purchase size effect (PSE), refers to how the tax salience effect changes based on the size of the monetary stake of the purchase. The first chapter of this dissertation aims to assess whether participants in a 'quasi-field' laboratory experiment with an online shopping environment, real goods, low and high price/type goods, and with conspicuous taxation cues will make tax salience "errors" and if they will make less of them when purchasing more expensive goods. This is the first experiment in the literature to focus on the PSE dimension of tax salience and to divide participants into low and high income-/wealth-analogous budget levels. The results confirm consistent and significant tax salience effects and reveal the PSE despite the cues. Tax salience effect is most driven by high-budget participants while low-budget participants exhibit several more significant PSE difference estimates. Such a combination suggests that those with more constraining budgets were less likely to be making a tax..