Abstract

http://ssrn.com/abstract=2067157
 


 



Experimental Evidence of Tax Salience and the Labor-Leisure Decision: Anchoring, Tax Aversion, or Complexity?


Andrew T. Hayashi


University of Virginia - School of Law

Brent K. Nakamura


University of California, Berkeley

David Gamage


University of California, Berkeley - Boalt Hall School of Law

May 25, 2012

Public Finance Review, Vol. 41, pp. 203, 2013
UC Berkeley Public Law Research Paper No. 2067157
NYU Law and Economics Research Paper No. 12-14

Abstract:     
Recent research in marketing and public economics suggests that consumers underestimate the effects of taxes and surcharges on total purchase prices when taxes and surcharges are made less salient. The leading explanation is that consumers anchor on base prices and underadjust for surcharges. We perform experiments that: extend the tax salience and price partitioning literatures to the labor supply context; test the anchoring hypothesis by examining the effects of positive and negative wage surcharges on willingness to work; and test whether responses to price partitioning result from imperfect calculation of all-inclusive prices or from deeper preferences. We reject the anchoring hypothesis and find that subjects are less willing to work both when their wages are partitioned with positive and with negative surcharge components. We also find evidence that partitioned pricing effects result from cognitive limitations and possibly from responses to complexity.

Number of Pages in PDF File: 37

Keywords: experiment, framing, partitioned pricing, labor supply, taxation, tax salience

JEL Classification: C91, D03, H20, J22

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Date posted: May 28, 2012 ; Last revised: February 25, 2013

Suggested Citation

Hayashi, Andrew T. and Nakamura, Brent K. and Gamage, David, Experimental Evidence of Tax Salience and the Labor-Leisure Decision: Anchoring, Tax Aversion, or Complexity? (May 25, 2012). Public Finance Review, Vol. 41, pp. 203, 2013 ; UC Berkeley Public Law Research Paper No. 2067157; NYU Law and Economics Research Paper No. 12-14. Available at SSRN: http://ssrn.com/abstract=2067157 or http://dx.doi.org/10.2139/ssrn.2067157

Contact Information

Andrew T. Hayashi (Contact Author)
University of Virginia - School of Law ( email )
580 Massie Road
Charlottesville, VA 22903
United States
Brent K. Nakamura
University of California, Berkeley ( email )
Jurisprudence and Social Policy Program
2240 Piedmont Avenue
Berkeley, CA 94720-2150
United States
David Gamage
University of California, Berkeley - Boalt Hall School of Law ( email )
215 Boalt Hall
Berkeley, CA 94720-7200
United States
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