Experimental Evidence on the Relationship between Tax Evasion Opportunities and Labor Supply
52 Pages Posted: 9 Oct 2012 Last revised: 18 Dec 2012
Date Written: December 15, 2012
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 first discuss the channels through which access to evasion affects labor supply responses and then set up a laboratory experiment in which all participants undertake a real-effort 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 differently 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: Suggested Citation