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Complex Tax Incentives - An Experimental Investigation

Johannes Abeler and Simon Jäger

No 4231, CESifo Working Paper Series from CESifo

Abstract: How does tax complexity affect people’s reaction to tax changes? To answer this question, we conduct an experiment in which subjects work for a piece rate and face taxes. One treatment features a simple, the other a complex tax system. The payoff-maximizing effort level and the incentives around this optimum are, however, identical across treatments. We introduce the same sequence of additional taxes in both treatments. Subjects in the complex treatment underreact to new taxes; some ignore new taxes entirely. Contrary to predictions from models of rational inattention, subjects are equally likely to ignore large or small incentive changes.

Keywords: complexity; taxation; attention; salience; laboratory experiment (search for similar items in EconPapers)
JEL-codes: C91 D03 H31 J22 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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