Tax Notches in the Lab: Disentangling Real and Evasion Responses

Michele Bernasconi (), Irene Maria Buso, Anna Marenzi and Dino Rizzi
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Michele Bernasconi: Ca’ Foscari University of Venice
Irene Maria Buso: University of Bologna
Anna Marenzi: Ca’ Foscari University of Venice
Dino Rizzi: Ca’ Foscari University of Venice

No 2025: 15, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: Several empirical studies find large behavioural responses to the incentives created by tax notches, highlighting the challenge of distinguishing between responses driven by real effects and by tax reporting. In a lab experiment, we find strong evidence of excessive bunching in a tax notch system, both with and without evasion possibilities. The effort adjustments are mainly from above the threshold, while the evasion adjustments are mainly from below the threshold. Both adjustments contribute to a reduction in the underreporting rate. We also confirm evidence of optimisation frictions. They are stronger when evasion is possible than when it is not. A gender breakdown highlights both the robustness of the effects found and the impact that heterogeneous preferences can have on the overall responses to tax notches.

Keywords: Tax Evasion; Effort; Bunching; Lab Experiment (search for similar items in EconPapers)
JEL-codes: C91 H24 H26 (search for similar items in EconPapers)
Pages: 76 pages
Date: 2025
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