The Effects of Tax Salience and Tax Experience on Individual Work Efforts in a Framed Field Experiment
AbstractWe conduct a framed field experiment with 245 employed persons (no students) as subjects and a real tax, which is levied on the subjects' income from working in our real effort task. In our first three treatments, the net wage is constant but gross wages are subject to different constant marginal tax rates (0, 25%, 50%). It turns out that the effort is significantly higher under the tax than in the no tax treatment. Subjects perceive a too high net wage because they underestimate the tax. We conjecture that tax perception depends on the tax rate, the presentation of the tax and the experience subjects have with taxation. These conjectures are confirmed in four further treatments employing a direct and an indirect progressive tax scale. It turns out that simple flat taxes are particularly prone to being misperceived because their simplicity reduces the tax salience.
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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 110020.
Length: 28 pages
Date of creation: Aug 2011
Date of revision:
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Field experiment; real effort experiment; tax perception; tax salience; tax experience; behavioral economics;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-10-15 (Accounting & Auditing)
- NEP-ALL-2011-10-15 (All new papers)
- NEP-EXP-2011-10-15 (Experimental Economics)
- NEP-PBE-2011-10-15 (Public Economics)
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