Circumstantial Risk: Impact of Future Tax Evasion and Labor Supply Opportunities on Risk Exposure

41 Pages Posted: 1 Feb 2014

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)

Christopher Zeppenfeld

University of Cologne

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Abstract

This paper examines whether risk-taking in a lottery depends on the opportunity to respond to the lottery outcome through additional labor effort and/or tax evasion. Previous empirical attempts to answer this question face identification issues due to self-selection into jobs that facilitate tax evasion and labor effort flexibility. We address these identification issues using a laboratory experiment (N = 180). Subjects have the opportunity to invest earned income in a lottery and, depending on randomly assigned treatment states, have the opportunity to respond to the lottery outcome through evasion and/or extra labor effort. We find strong evidence that ex-post access to labor opportunities reduces ex-ante risk willingness while access to tax evasion has no effect on risk behavior. We discuss possible explanations for this result based on the existing literature.

Keywords: tax evasion, labor supply, risk behavior, lab experiment

JEL Classification: G11, H21, H24, H26, J22

Suggested Citation

Dörrenberg, Philipp and Duncan, Denvil and Zeppenfeld, Christopher, Circumstantial Risk: Impact of Future Tax Evasion and Labor Supply Opportunities on Risk Exposure. IZA Discussion Paper No. 7917, Available at SSRN: https://ssrn.com/abstract=2389285 or http://dx.doi.org/10.2139/ssrn.2389285

Philipp Dörrenberg (Contact Author)

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

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

Christopher Zeppenfeld

University of Cologne ( email )

No Address Available

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