Behavioral Effects of Withholding Taxes on Labor Supply

Johannes Becker, Jonas Fooken and Melanie Steinhoff
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Jonas Fooken: School of Economics, The University of Queensland
Melanie Steinhoff: University of Muenster

No 589, Discussion Papers Series from University of Queensland, School of Economics

Abstract: Income tax collection in most advanced economies uses third-party reporting and withholding at the employer level before the employee receives her wage income. Since withholding taxes do not necessarily reflect the true effective tax burden, they may give false signals on the net-of-tax pay. We report results of laboratory experiments in which labor supply effects of such misperceptions are tested. Withholding taxes (and resulting tax refunds) should be behaviorally neutral in the experiment, but our results suggest that withholding taxes reduce effort and tax adjustments lead to adjustments of effort for our most relevant group of participants, those motivated by monetary incentives. This indicates that withholding taxes may be behaviorally relevant and deserve attention of policy-makers

Keywords: Withholding taxes; experiment; tax perceptions (search for similar items in EconPapers)
JEL-codes: G32 H25 M41 (search for similar items in EconPapers)
Date: 2018-03-07
New Economics Papers: this item is included in nep-exp, nep-law, nep-pbe and nep-pub
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https://economics.uq.edu.au/files/46290/589.pdf (application/pdf)

Related works:
Journal Article: Behavioral Effects of Withholding Taxes on Labor Supply (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:qld:uq2004:589

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