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Tax Misperceptions and Labor Supply: A Randomized Information Experiment

Author

Listed:
  • Dur, Robert

    (Erasmus University Rotterdam)

  • Harms, Job

    (Ministry of Finance, The Netherlands)

  • Non, Arjan

    (Erasmus University Rotterdam, Tinbergen Institute, and CESifo)

Abstract

In countries with a complex tax system, it is difficult for people to correctly assess their effective marginal tax rate, which in turn can have important consequences for labor supply. We conduct a two-wave randomized survey experiment among a representative sample of the Dutch working-age population (N≈2,000) to assess what misperceptions people have and whether addressing those misperceptions via an information intervention affects their labor supply. Our data show that people with low income greatly overestimate their marginal tax rate, while people with high income tend to slightly underestimate it. The information intervention results in more accurate perceptions of the effective marginal tax rate two months after treatment. Work hours of those who initially overestimated their marginal tax rate increase by 1.5 hours per week as a result of the information treatment. The implied compensated wage elasticity of labor supply is +0.3. The effect is concentrated among those who indicate in the first wave that they face no restrictions to increase their work hours. The information intervention reduces income inequality.

Suggested Citation

  • Dur, Robert & Harms, Job & Non, Arjan, 2026. "Tax Misperceptions and Labor Supply: A Randomized Information Experiment," IZA Discussion Papers 18870, IZA Network @ LISER.
    • Handle: RePEc:iza:izadps:dp18870
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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