Asymmetric labor supply responses to tax rate reform: Experimental evidence

Katharina Pfeil, Matthias Kasper, Sarah Necker and Lars Feld

No 25/9, Freiburg Discussion Papers on Constitutional Economics from Walter Eucken Institut e.V.

Abstract: We study how individuals adjust their labor supply in response to tax reforms that alter income tax progressivity. In an online experiment with 522 participants, we compare responses to reforms that replace a progressive tax system with a flat tax and vice versa. We find asymmetric effects: labor supply increases when a progressive regime is replaced by a flat tax system, but does not decline when progressivity is introduced. This increase in labor provision occurs only when the reform lowers the marginal tax rate, not when it raises it. Our results suggest that labor supply responses to tax reforms are nuanced and path-dependent: reforms change behavior when they ease tax burdens for individuals who were previously discouraged from working more due to progressive thresholds.

Keywords: Tax System Design; Tax Reform; Notches; Labor Supply; Online Experiment (search for similar items in EconPapers)
JEL-codes: C91 H24 H30 J20 J22 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:aluord:327115

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