The Effects of Tax Salience and Tax Experience on Individual Work Efforts in a Framed Field Experiment

30 Pages Posted: 30 Oct 2011

See all articles by Martin Fochmann

Martin Fochmann

University of Cologne

Joachim Weimann

Otto-von-Guericke-Universit├Ąt Magdeburg - Institute of Economics and Business Administration; CESifo (Center for Economic Studies and Ifo Institute)

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Abstract

We 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 at taxes are particularly prone to being misperceived because their simplicity reduces the tax salience.

Keywords: field experiment, real effort experiment, tax perception, tax salience, tax experience, behavioral economics

JEL Classification: C91, D14, H24

Suggested Citation

Fochmann, Martin and Weimann, Joachim, The Effects of Tax Salience and Tax Experience on Individual Work Efforts in a Framed Field Experiment. IZA Discussion Paper No. 6049. Available at SSRN: https://ssrn.com/abstract=1951340

Martin Fochmann (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Behavioral Accounting/Taxation/Finance
Cologne, 50923
Germany

HOME PAGE: http://www.taxation.uni-koeln.de/de/team/prof-dr-martin-fochmann/

Joachim Weimann

Otto-von-Guericke-Universit├Ąt Magdeburg - Institute of Economics and Business Administration ( email )

Universitaetsplatz 2
Magdeburg, 39016
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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