Mental budgeting of the self-employed without personnel

Abstract

We report on three studies on mental budgeting, the first one including qualitative interviews, the second and third developing a mental budgeting scale and its relationship with tax compliance, respectively, in a large survey among self-employed people without personnel. The qualitative study revealed four aspects of mental budgeting: budgeting, making reservations, nonfungibility, and compensation. The quantitative study yielded a 13-item reliable one- dimensional Mental Budgeting scale capturing three of the aspects. Two measures of tax compliance were positively related to mental budgeting, controlling for endogeneity. Female gender, age, and self- reported knowledge of financial issues were positively related to the mental budgeting scale.