Tax illusion and savings perception: The case of compulsory loans

The explicit specification of a short-run tax illusion effect accompanying compulsory loan levy is introduced, thus enabling its empirical verification and estimation by income group using cross-section data. Consumption-Savings/Savings-composition behaviour and decisions in both the short-run and long term and liquidity/risk-asset preference are dealt with in this context, and three possible forms of the effect are proposed: (a)continuous over, (b)discontinuous over, or (c)discontinuous within income groups, with expected results discussed accordingly. Finally, compulsory loan levy in Israel is discussed and proposed as a valid case for further study.