Net Wage Illusion in a Real‐Effort Experiment

9 Pages Posted: 11 Apr 2013

See all articles by Martin Fochmann

Martin Fochmann

Free University of Berlin; University of Cologne

Joachim Weimann

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

Kay Blaufus

Leibniz Universität Hannover

Jochen Hundsdoerfer

Free University of Berlin (FUB); Norwegian Center for Taxation

Dirk Kiesewetter

University of Würzburg

Date Written: April 2013

Abstract

In a controlled laboratory experiment, subjects had to fold letters in order to earn money. While the net income per letter was the same in the three treatments, the gross income varied and the tax rate was 0, 25, and 50 percent. Although work incentives should be the same in all treatments, subjects worked harder and longer when they were taxed. We conclude that this is because of a net wage illusion effect. The existence of this effect demonstrates that not only are the tax rate and the tax base of importance for work incentives, but the perception of a tax is also important.

Keywords: Behavioral economics, experimental economics, income taxation, tax perception

JEL Classification: C91, H2

Suggested Citation

Fochmann, Martin and Weimann, Joachim and Blaufus, Kay and Hundsdoerfer, Jochen and Kiesewetter, Dirk, Net Wage Illusion in a Real‐Effort Experiment (April 2013). The Scandinavian Journal of Economics, Vol. 115, Issue 2, pp. 476-484, 2013. Available at SSRN: https://ssrn.com/abstract=2248469 or http://dx.doi.org/10.1111/sjoe.12007

Martin Fochmann (Contact Author)

Free University of Berlin ( email )

Thielallee 73
Accounting and Taxation
Berlin, 14195
Germany

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-Universität 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

Kay Blaufus

Leibniz Universität Hannover ( email )

Institut für Betriebswirtschaftliche Steuerlehre
Koenigsworther Platz 1
Hannover, 30167
Germany

Jochen Hundsdoerfer

Free University of Berlin (FUB) ( email )

Norwegian Center for Taxation ( email )

Helleveien 30
Bergen, Bergen 5045
Norway

Dirk Kiesewetter

University of Würzburg ( email )

Sanderring 2
Würzburg, D-97070
Germany

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