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
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Citations: View citations in EconPapers (9)
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Working Paper: Complex Tax Incentives: An Experimental Investigation (2013) 
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_4231
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