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

43 Pages Posted: 12 Feb 2014 Last revised: 8 Nov 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

Multiple version iconThere are 2 versions of this paper

Date Written: October 6, 2014

Abstract

This paper examines whether investment in a risky asset depends on future circumstances. We conduct a laboratory experiment where subjects have the opportunity to invest earned income in a risky asset and, depending on randomly assigned treatment states, have the opportunity to respond to the outcome of the investment through extra labor effort and/or tax evasion. We find evidence that ex-post access to labor opportunities decreases ex-ante risk-taking, while access to tax evasion has no effect. Having both opportunities leads to lower risk-taking, but this effect is not statistically significant. We explore the channels behind these results with two additional treatments and find that our results are driven by background risk rather than flexibility.

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 (October 6, 2014). ZEW - Centre for European Economic Research Discussion Paper No. 14-014, Available at SSRN: https://ssrn.com/abstract=2394005 or http://dx.doi.org/10.2139/ssrn.2394005

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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