Income Tax and the Motivation to Work

38 Pages Posted: 4 Sep 2015 Last revised: 20 Mar 2017

Scott Rick

University of Michigan, Stephen M. Ross School of Business

Gabriele Paolacci

Erasmus University - Rotterdam School of Management

Katherine Alicia Burson

University of Michigan, Stephen M. Ross School of Business

Date Written: March 19, 2017

Abstract

Does income tax influence the motivation to work? We propose that the degree of effort exertion in the presence of income tax depends on people’s attitudes toward two key components of taxation: redistribution and government intervention. For people favorable toward both, working while taxed is aligned with personal identity and may actually enhance motivation. All others, however, may find taxes demotivating. In two incentive-compatible labor experiments, framing wages as subject to an income tax reduced participants’ productivity unless they were chronically favorable toward both redistribution and government intervention. This latter group was significantly more productive when taxed. An objectively equivalent intervention that did not redistribute a portion of participants’ wages (framed as a wage “match” rather than a “tax”) did not motivate anyone to work harder. Our findings suggest that the net effect of income tax on productivity partly depends on the distribution of attitudes toward redistribution and government intervention.

Keywords: income tax, motivation, tax, identity, productivity, decision making

JEL Classification: E24, H24, H20, C91, D20

Suggested Citation

Rick, Scott and Paolacci, Gabriele and Burson, Katherine Alicia, Income Tax and the Motivation to Work (March 19, 2017). Ross School of Business Paper No. 1285. Available at SSRN: https://ssrn.com/abstract=2655424 or http://dx.doi.org/10.2139/ssrn.2655424

Scott Rick (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

HOME PAGE: http://webuser.bus.umich.edu/srick/

Gabriele Paolacci

Erasmus University - Rotterdam School of Management ( email )

3000 DR Rotterdam
Netherlands

Katherine Alicia Burson

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

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