Grosswage illusion in a real effort experiment
AbstractIn a controlled laboratory experiment, subjects had to fold letters in order to earn money. While the net income per letter was the same in the three treatments, the gross income varied and the tax rate was 0, 25% and 50%. Although work incentives should be the same in all treatments, subjects worked harder and longer when they were taxed. We conclude that this is due to a ‘gross-wage illusion effect’. The existence of this effect demonstrates that not only the tax rate and the tax base are of importance for work incentives, but also the perception of a tax.
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Bibliographic InfoPaper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 100009.
Length: 14 pages
Date of creation: Feb 2010
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Find related papers by JEL classification:
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-15 (All new papers)
- NEP-CBE-2010-05-15 (Cognitive & Behavioural Economics)
- NEP-EXP-2010-05-15 (Experimental Economics)
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