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The choice between a set of alternatives often depends on how those alternatives are described, as well as their actual economic costs and benefits. We report results from an experiment designed to evaluate the impact of different descriptions of the after-tax wage on both (1) subjects' willingness to perform a work task rather than an alternative leisure option, and (2) the amount of work performed by those subjects selecting the work task. Utilizing an experimental design that facilitates both within and between-subject comparisons, we find that that subjects' willingness to work varies with the framing of the after-tax wage and that, in particular, subjects are much less willing to work when the returns to work are framed as a low wage plus a bonus than when the returns are described as a high wage minus a tax. Along the intensive margin we find suggestive evidence that subjects stop working just before their wage becomes subject to a significantly higher marginal tax rate, but we do not observe similar clustering when gross wages become subject to an equivalent wage decrease that is not described as a tax increase.Page 3 of 32 IntroductionA standard assumption in public economics research is that agents fully optimize with respect to the actual economic tradeoffs that they face, perfectly calculating the after-tax prices of the consumption, investment, and work alternatives available to them and maximizing their utility given those prices (Chetty 2009). A corollary of this assumption is that the formal description of these prices does not affect agents' choices. At the same time, it is well-known that preferences may be context-dependent and affected by the way that choices are described or "framed." For example, a number of recent studies suggest that individuals fail to fully incorporate the effects of taxes into their evaluation of market alternatives when those effects are made less salient by the framing of the decision.1 If behavioral responses to prices are dependent on framing, including whether the effects of taxes are more or less salient, then this has profound consequences for tax policy because it implies that the distortionary effects of taxes on individual behavior and the attendant negative welfare consequences are not just a function of the taxes themselves, but also of how they are implemented and described. To this end, research on tax framing and salience may guide the way toward increasing the efficiency of taxation.However, while there are a growing number of empirical studies of the effects of tax framing on individual behavior, these are mainly restricted to evaluations of the effects on consumer purchasing decisions ), Finklestein (2009, Gallagher and Muehlegger (2008), Ott and Andrus (2000)) and, due to data limitations, the effect of framing on labor supply decisions has been largely unexplored. 2 In this paper, we report evidence from an experiment designed to test whether variation in the framing of the after-tax wage affects (1) subjects' willingness to select a "work" ...

Recent research in marketing and public economics suggests that consumers underestimate the effects of taxes and surcharges on total purchase prices when taxes and surcharges are made less salient. The leading explanation is that consumers anchor on base prices and underadjust for surcharges. We perform experiments that (1) extend the tax salience and price partitioning literatures to the labor supply context, (2) test the anchoring hypothesis by examining the effects of positive and negative wage surcharges on willingness to work, and (3) test whether responses to price partitioning result from imperfect calculation of all-inclusive prices or from deeper preferences. We reject the anchoring hypothesis and find that subjects are less willing to work both when their wages are partitioned with positive and with negative surcharge components. We also find evidence that partitioned pricing effects result from cognitive limitations and possibly from responses to complexity.