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Asymmetric labor supply responses to tax rate reform: Experimental evidence

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  • Pfeil, Katharina
  • Kasper, Matthias
  • Necker, Sarah
  • Feld, Lars P.

Abstract

We study how individuals adjust their labor supply in response to tax reforms that alter income tax progressivity. In an online experiment with 522 participants, we compare responses to reforms that replace a progressive tax system with a flat tax and vice versa. We find asymmetric effects: labor supply increases when a progressive regime is replaced by a flat tax system, but does not decline when progressivity is introduced. This increase in labor provision occurs only when the reform lowers the marginal tax rate, not when it raises it. Our results suggest that labor supply responses to tax reforms are nuanced and path-dependent: reforms change behavior when they ease tax burdens for individuals who were previously discouraged from working more due to progressive thresholds.

Suggested Citation

  • Pfeil, Katharina & Kasper, Matthias & Necker, Sarah & Feld, Lars P., 2025. "Asymmetric labor supply responses to tax rate reform: Experimental evidence," Freiburg Discussion Papers on Constitutional Economics 25/9, Walter Eucken Institut e.V..
    • Handle: RePEc:zbw:aluord:327115
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    Keywords

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    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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