Advanced Search
MyIDEAS: Login to save this paper or follow this series

Experimental Evidence on the Relationship between Tax Evasion Opportunities and Labor Supply

Contents:

Author Info

  • Doerrenberg, Philipp

    ()
    (ZEW Mannheim)

  • Duncan, Denvil

    ()
    (Indiana University)

Abstract

Motivated by the observation that access to evasion opportunities is distributed heterogeneously across the labor market, this paper examines the extent to which labor supply elasticities with respect to tax rates depend on such evasion opportunities. We first discuss the channels through which access to evasion affects labor supply responses and then set up a laboratory experiment in which all participants undertake a real-effort task over several rounds. Subjects face a tax rate, which varies across rounds and are required to pay taxes on earned income. The treatment group is given the opportunity to underreport income while the control group is not. We find that participants in the treatment group have significantly larger effort responses to changes in the net-of-tax rate than participants in the control group; suggesting that both groups indeed react differently to taxes.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ftp.iza.org/dp6914.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6914.

as in new window
Length: 58 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6914

Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information:
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:

Related research

Keywords: lab experiment; taxable income; labor supply; tax evasion; taxes;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. David Gill & Victoria Prowse, 2011. "A Structural Analysis of Disappointment Aversion in a Real Effort Competition," Discussion Papers, University of Oxford, Nuffield College 2011001, University of Oxford, Nuffield College.
  2. Rolf Aaberge & Ugo Colombino, 2013. "Using a Microeconometric Model of Household Labour Supply to Design Optimal Income Taxes," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 115(2), pages 449-475, 04.
  3. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
  4. Victoria Prowse & David Gill, 2009. "A Novel Computerized Real Effort Task Based on Sliders," Economics Series Working Papers 435, University of Oxford, Department of Economics.
  5. Armin Falk & James J. Heckman, 2009. "Lab Experiments are a Major Source of Knowledge in the Social Sciences," CESifo Working Paper Series 2894, CESifo Group Munich.
  6. Rupert Sausgruber & Jean-Robert Tyran, 2005. "Testing the Mill hypothesis of fiscal illusion," Public Choice, Springer, Springer, vol. 122(1), pages 39-68, January.
  7. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, Elsevier, vol. 1(3-4), pages 323-338, November.
  8. Joel Slemrod, 2001. "A General Model of the Behavioral Response to Taxation," International Tax and Public Finance, Springer, Springer, vol. 8(2), pages 119-128, March.
  9. Alm, James & Torgler, Benno, 2006. "Culture differences and tax morale in the United States and in Europe," Journal of Economic Psychology, Elsevier, Elsevier, vol. 27(2), pages 224-246, April.
  10. Konig, Heinz, et al, 1995. "Tax Illusion and Labour Supply of Married Women: Evidence from German Data," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 48(3), pages 347-68.
  11. Michael P. Keane, 2011. "Labor Supply and Taxes: A Survey," Journal of Economic Literature, American Economic Association, vol. 49(4), pages 961-1075, December.
  12. Bernard Fortin & Guy Lacroix & Marie-Claire Villeval, 2004. "Tax Evasion and Social Interactions," Post-Print halshs-00175016, HAL.
  13. Bastani, Spencer & Selin, Håkan, 2011. "Bunching and Non-Bunching at Kink Points of the Swedish Tax schedule," Working Paper Series, Center for Fiscal Studies 2011:12, Uppsala University, Department of Economics.
  14. Frederiksen, Anders & Graversen, Ebbe Krogh & Smith, Nina, 2005. "Tax evasion and work in the underground sector," Labour Economics, Elsevier, Elsevier, vol. 12(5), pages 613-628, October.
  15. Raj Chetty & John N. Friedman & Emmanuel Saez, 2013. "Using Differences in Knowledge across Neighborhoods to Uncover the Impacts of the EITC on Earnings," American Economic Review, American Economic Association, American Economic Association, vol. 103(7), pages 2683-2721, December.
  16. David Gill & Victoria Prowse, 2013. "Gender Differences and Dynamics in Competition: The Role of Luck," Discussion Papers, University of Oxford, Nuffield College 2013001, University of Oxford, Nuffield College.
  17. Joel Slemrod & Caroline Weber, 2012. "Evidence of the invisible: toward a credibility revolution in the empirical analysis of tax evasion and the informal economy," International Tax and Public Finance, Springer, Springer, vol. 19(1), pages 25-53, February.
  18. Kai A. Konrad & Salmai Qari, 2012. "The Last Refuge of a Scoundrel? Patriotism and Tax Compliance," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 79(315), pages 516-533, 07.
  19. Doerrenberg, Philipp & Peichl, Andreas, 2010. "Progressive Taxation and Tax Morale," IZA Discussion Papers 5378, Institute for the Study of Labor (IZA).
  20. Emmanuel Saez, 2010. "Do Taxpayers Bunch at Kink Points?," American Economic Journal: Economic Policy, American Economic Association, American Economic Association, vol. 2(3), pages 180-212, August.
  21. Roed, Knut & Strom, Steinar, 2002. " Progressive Taxes and the Labour Market: Is the Trade-Off between Equality and Efficiency Inevitable?," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 16(1), pages 77-110, February.
  22. Amy Finkelstein, 2009. "E-ZTAX: Tax Salience and Tax Rates," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 124(3), pages 969-1010, August.
  23. Pencavel, John H., 1979. "A note on income tax evasion, labor supply, and nonlinear tax schedules," Journal of Public Economics, Elsevier, Elsevier, vol. 12(1), pages 115-124, August.
  24. James Alm, 2012. "Measuring, explaining, and controlling tax evasion: lessons from theory, experiments, and field studies," International Tax and Public Finance, Springer, Springer, vol. 19(1), pages 54-77, February.
  25. David Gill & Victoria Prowse & Michael Vlassopoulos, 2013. "Cheating in the workplace: An experimental study of the impact of bonuses and productivity," Economics Series Working Papers 666, University of Oxford, Department of Economics.
  26. Rolf Aaberge & Ugo Colombino, 2006. "Designing Optimal Taxes with a Microeconometric Model of Household Labour Supply," ICER Working Papers, ICER - International Centre for Economic Research 37-2006, ICER - International Centre for Economic Research.
  27. Halla, Martin, 2010. "Tax Morale and Compliance Behavior: First Evidence on a Causal Link," IZA Discussion Papers 4918, Institute for the Study of Labor (IZA).
  28. Olivier Bargain & Kristian Orsini & Andreas Peichl, 2012. "Comparing Labor Supply Elasticities in Europe and the US: New Results," Working Papers halshs-00805736, HAL.
  29. Tomer Blumkin & Bradley J. Ruffle & Yosef Ganun, 2008. "Are Income and Consumption Taxes Ever Really Equivalent? Evidence from a Real-Effort Experiment with Real Goods," Working Papers, Ben-Gurion University of the Negev, Department of Economics 0801, Ben-Gurion University of the Negev, Department of Economics.
  30. Lemieux, Thomas & Fortin, Bernard & Frechette, Pierre, 1994. "The Effect of Taxes on Labor Supply in the Underground Economy," American Economic Review, American Economic Association, American Economic Association, vol. 84(1), pages 231-54, March.
  31. Alm, James & Jackson, Betty R. & McKee, Michael, 2009. "Getting the word out: Enforcement information dissemination and compliance behavior," Journal of Public Economics, Elsevier, Elsevier, vol. 93(3-4), pages 392-402, April.
  32. Alm, James & Cherry, Todd & Jones, Michael & McKee, Michael, 2010. "Taxpayer information assistance services and tax compliance behavior," Journal of Economic Psychology, Elsevier, Elsevier, vol. 31(4), pages 577-586, August.
  33. Joel Slemrod & Wojciech Kopczuk, 2000. "The Optimal Elasticity of Taxable Income," NBER Working Papers 7922, National Bureau of Economic Research, Inc.
  34. Riedl A.M. & Cettolin E., 2013. "Justice under uncertainty," Research Memorandum, Maastricht University, Graduate School of Business and Economics (GSBE) 036, Maastricht University, Graduate School of Business and Economics (GSBE).
  35. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
  36. Falk, Armin & Fehr, Ernst, 2003. "Why labour market experiments?," Labour Economics, Elsevier, Elsevier, vol. 10(4), pages 399-406, August.
  37. Philipp Doerrenberg & Denvil Duncan & Clemens Fuest & Andreas Peichl, 2012. "Nice Guys Finish Last: Are People with Higher Tax Morale Taxed more Heavily?," CESifo Working Paper Series 3858, CESifo Group Munich.
  38. Armin Falk & Stephan Meier & Christian Zehnder, 2013. "Do Lab Experiments Misrepresent Social Preferences? The Case Of Self-Selected Student Samples," Journal of the European Economic Association, European Economic Association, European Economic Association, vol. 11(4), pages 839-852, 08.
  39. Stefanie Stantcheva & Emmanuel Saez & Thomas Piketty, 2012. "Optimal Taxation of Top Labor Incomes: A Tale of Three Elasticities," 2012 Meeting Papers, Society for Economic Dynamics 78, Society for Economic Dynamics.
  40. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, American Economic Association, vol. 99(4), pages 1145-77, September.
  41. Gary Charness & Peter J. Kuhn, 2010. "Lab Labor: What Can Labor Economists Learn from the Lab?," NBER Working Papers 15913, National Bureau of Economic Research, Inc.
  42. Denvil Duncan & Klara Sabirianova Peter, 2010. "Does labour supply respond to a flat tax?," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 18(2), pages 365-404, 04.
  43. Heim, Bradley T., 2010. "The responsiveness of self-employment income to tax rate changes," Labour Economics, Elsevier, Elsevier, vol. 17(6), pages 940-950, December.
  44. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 21(1), pages 25-48, Winter.
  45. Graetz, Michael J. & Reinganum, Jennifer F. & Wilde, Louis L., . "The Tax Compliance Game: Toward an Interactive Theory of Law Enforcement," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 589, California Institute of Technology, Division of the Humanities and Social Sciences.
  46. Bradley T. Heim, 2009. "The effect of recent tax changes on taxable income: Evidence from a new panel of tax returns," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 28(1), pages 147-163.
  47. Martin Fochmann & Joachim Weimann & Kay Blaufus & Jochen Hundsdoerfer & Dirk Kiesewetter, 2013. "Net Wage Illusion in a Real-Effort Experiment," Scandinavian Journal of Economics, Wiley Blackwell, Wiley Blackwell, vol. 115(2), pages 476-484, 04.
  48. Dickinson, David L, 1999. "An Experimental Examination of Labor Supply and Work Intensities," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 17(4), pages 638-70, October.
  49. Sandmo, Agnar, 1981. "Income tax evasion, labour supply, and the equity--efficiency tradeoff," Journal of Public Economics, Elsevier, Elsevier, vol. 16(3), pages 265-288, December.
  50. Wojciech Kopczuk, 2003. "Tax Bases, Tax Rates and the Elasticity of Reported Income," NBER Working Papers 10044, National Bureau of Economic Research, Inc.
  51. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, Springer, vol. 10(2), pages 171-178, June.
  52. repec:qut:qubewp:001 is not listed on IDEAS
  53. Bargain, Olivier & Orsini, Kristian & Peichl, Andreas, 2011. "Labor Supply Elasticities in Europe and the US," EUROMOD Working Papers EM1/11, EUROMOD at the Institute for Social and Economic Research.
  54. James Alm & Keith Finlay, 2012. "Who Benefits from Tax Evasion?," Working Papers, Tulane University, Department of Economics 1214, Tulane University, Department of Economics.
  55. Jeffrey M. Wooldridge, 2001. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262232197, December.
  56. Eckel, Catherine C. & Grossman, Philip J., 1996. "Altruism in Anonymous Dictator Games," Games and Economic Behavior, Elsevier, Elsevier, vol. 16(2), pages 181-191, October.
  57. Hammermann, Andrea & Mohnen, Alwine & Nieken, Petra, 2012. "Whom to Choose as a Team Mate? A Lab Experiment about In-Group Favouritism," IZA Discussion Papers 6286, Institute for the Study of Labor (IZA).
  58. Martin Fochmann & Joachim Weimann, 2011. "The Effects of Tax Salience and Tax Experience on Individual Work Efforts in a Framed Field Experiment," FEMM Working Papers 110020, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  59. Henrik Jacobsen Kleven & Martin B. Knudsen & Claus Thustrup Kreiner & Søren Pedersen & Emmanuel Saez, 2011. "Unwilling or Unable to Cheat? Evidence From a Tax Audit Experiment in Denmark," Econometrica, Econometric Society, Econometric Society, vol. 79(3), pages 651-692, 05.
  60. Slemrod,Joel, 1997. "Tax Progressivity and Income Inequality," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521587761.
  61. Torgler, Benno, 2002. " Speaking to Theorists and Searching for Facts: Tax Morale and Tax Compliance in Experiments," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 16(5), pages 657-83, December.
  62. Rosen, Harvey S, 1976. "Taxes in a Labor Supply Model with Joint Wage-Hours Determination," Econometrica, Econometric Society, Econometric Society, vol. 44(3), pages 485-507, May.
  63. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  64. Gerhard Riener & Simon Wiederhold, 2011. "On Social Identity, Subjective Expectations, and the Costs of Control," Jena Economic Research Papers, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics 2011-035, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  65. Djawadi, Behnud Mir & Fahr, René, 2013. "The Impact of Tax Knowledge and Budget Spending Influence on Tax Compliance," IZA Discussion Papers 7255, Institute for the Study of Labor (IZA).
  66. Rosen, Harvey S, 1976. "Tax Illusion and the Labor Supply of Married Women," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 167-72, May.
  67. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 21(2), pages 153-174, Spring.
  68. Cowell, Frank A., 1985. "Tax evasion with labour income," Journal of Public Economics, Elsevier, Elsevier, vol. 26(1), pages 19-34, February.
  69. Alm, James & Jackson, Betty & McKee, Michael, 1992. "Institutional Uncertainty and Taxpayer Compliance," American Economic Review, American Economic Association, American Economic Association, vol. 82(4), pages 1018-26, September.
  70. Robert Slonim & Alvin E. Roth, 1998. "Learning in High Stakes Ultimatum Games: An Experiment in the Slovak Republic," Econometrica, Econometric Society, Econometric Society, vol. 66(3), pages 569-596, May.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Gill, David & Prowse, Victoria, 2011. "A novel computerized real effort task based on sliders," Discussion Paper Series In Economics And Econometrics 1101, Economics Division, School of Social Sciences, University of Southampton.
  2. Schröder, Melanie & Schmitt, Norma & Heynemann, Britta & Brünn, Claudia, 2013. "Income Taxation and Labor Supply: An Experiment on Couple's Work Effort," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79735, Verein für Socialpolitik / German Economic Association.
  3. Doerrenberg, Philipp & Duncan, Denvil & Zeppenfeld, Christopher, 2014. "Circumstantial risk: Impact of future tax evasion and labor supply opportunities on risk exposure," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 14-014, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. European Commission, 2013. "Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2013 Report," Taxation Papers, Directorate General Taxation and Customs Union, European Commission 38, Directorate General Taxation and Customs Union, European Commission.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp6914. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.