Experimental Evidence on the Relationship between Tax Evasion Opportunities and Labor Supply

52 Pages Posted: 9 Oct 2012 Last revised: 18 Dec 2012

See all articles by Philipp Dörrenberg

Philipp Dörrenberg

University of Mannheim; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); ZEW – Leibniz Centre for European Economic Research

Denvil Duncan

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA); Institute for the Study of Labor (IZA)

Multiple version iconThere are 2 versions of this paper

Date Written: December 15, 2012

Abstract

Motivated by the observation that access to evasion opportunities is distributed heterogeneously across the labor market, this paper examines the extent to which labor supply elasticities with respect to tax rates depend on such evasion opportunities. We fi rst discuss the channels through which access to evasion aff ects labor supply responses and then set up a laboratory experiment in which all participants undertake a real-eff ort task over several rounds. Subjects face a tax rate, which varies across rounds and are required to pay taxes on earned income. The treatment group is given the opportunity to under-report income while the control group is not. We find that participants in the treatment group respond di fferently to changes in the net-of-tax rate than participants in the control group.

Keywords: Tax Evasion, Labor Supply, Taxable Income, Lab Experiment, Taxes

JEL Classification: H21, H24, H26, J22

Suggested Citation

Dörrenberg, Philipp and Duncan, Denvil, Experimental Evidence on the Relationship between Tax Evasion Opportunities and Labor Supply (December 15, 2012). Indiana University, Bloomington School of Public & Environmental Affairs Research Paper No. 2012-10-01, Available at SSRN: https://ssrn.com/abstract=2158742 or http://dx.doi.org/10.2139/ssrn.2158742

Philipp Dörrenberg

University of Mannheim ( email )

L 7, 3-5
Mannheim, 68161
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Munich
Germany

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Denvil Duncan (Contact Author)

Indiana University Bloomington - School of Public & Environmental Affairs (SPEA) ( email )

1315 East Tenth Street
Bloomington, IN 47405
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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