Tax aversion in labor supply

Judd B. Kessler and Michael I. Norton

Journal of Economic Behavior & Organization, 2016, vol. 124, issue C, 15-28

Abstract: In a real-effort laboratory experiment, labor supply decreases more with the introduction of a tax than with a financially equivalent drop in wages. This “tax aversion” is large in magnitude: when we decompose the productivity decrease that arises from taxation, we estimate that 40% is due to the lower net wage and the remaining 60% to tax aversion. This tax aversion affects labor supply more on the extensive margin (working less) than on the intensive margin (being less productive while working). The aversion is equally strong whether tax revenue goes to the U.S. government or back to the experimenter (a “laboratory tax”). We discuss the implications of our results for the relationship between labor supply and taxation.

Keywords: Taxes; Labor supply; Productivity; Experiments (search for similar items in EconPapers)
JEL-codes: H20 H31 J22 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:124:y:2016:i:c:p:15-28

DOI: 10.1016/j.jebo.2015.09.022

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