Labor Supply Reaction to Wage Cuts and Tax Increases: A Real-Effort Experiment

Tomoharu Mori, Hirofumi Kurokawa and Fumio Ohtake

FinanzArchiv: Public Finance Analysis, 2022, vol. 78, issue 3, 362-377

Abstract: We investigate the labor supply reaction to wage cuts and tax increases using a real-effort experiment. First, subjects perform a task and receive a reward with taxes deducted. Second, the wage cut treatment reduces the wage rate and the tax increase treatment increases the tax (the real wage is equal for both treatments); wage and tax remain unchanged for the control group. Both treatments had significantly smaller increases in effort levels than the control group and the increases are not different between treatments. Therefore, "net wage illusion" and "tax aversion" identified in previous studies are not supported.

Keywords: labor supply; net wage illusion; tax aversion; laborsupply; netwageillusion; taxaversion (search for similar items in EconPapers)
JEL-codes: C91 H24 J24 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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Working Paper: Labor supply reaction to wage cuts and tax increases: A real-effort experiment (2020)
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DOI: 10.1628/fa-2022-0008

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