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

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  • 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.

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

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Length: 58 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6914

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

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Cited by:
  1. European Commission, 2013. "Tax reforms in EU Member States - Tax policy challenges for economic growth and fiscal sustainability – 2013 Report," Taxation Papers 38, Directorate General Taxation and Customs Union, European Commission.
  2. Doerrenberg, Philipp & Duncan, Denvil & Zeppenfeld, Christopher, 2014. "Circumstantial Risk: Impact of Future Tax Evasion and Labor Supply Opportunities on Risk Exposure," IZA Discussion Papers 7917, Institute for the Study of Labor (IZA).
  3. Gill, David & Prowse, Victoria, 2013. "A Novel Computerized Real Effort Task Based on Sliders," MPRA Paper 48081, University Library of Munich, Germany.
  4. 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.

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