Social benefit salience under risk of unemployment

This study investigates how the connection of taxation to public benefits can decrease tax payers' perceived tax burden, affecting their labor-leisure decision. We present a model of tax and benefit (mis)-perception, in which payoff maximizing work effort increases when the perceived tax burden de- creases. Increasing the salience of benefits funded by taxation and the prob- ability of receiving them decreases this perceived tax burden. We use two real-effort online experiments to test the suppositions of the model. In a flat tax system, we find that lack of information on the accrual of benefits increases perceived tax burden and decreases labor supply. In a progressive tax system, we find that full benefit salience improves motivation to re- main in the unemployment insurance system and that effort increases under benefit salience when the unemployment rate is high. As such, behavioral responses to the salience of benefits also requires the expectation of their need.