Experimental Evidence of Tax Salience and the Labor-Leisure Decision: Anchoring, Tax Aversion, or Complexity?

Tax aversion in labor supply

“…5 Hayashi et al (2013) failed to find tax aversion in the binary decision of whether to accept a job in the laboratory; when subjects were shown net wages alongside gross wages, labor supply did not vary with tax structure. 6 To our knowledge, among the experimental literature within economics only Weber and Schram (2013) investigate statutory incidence -measuring subjects' effort when facing taxes imposed either on employees or on employers.…”

“…Much of this literature examines the effect of taxes, which may or may not be salient and may or may not be complex, on workers who must calculate their net wage from their gross wage and the tax schedule (e.g., Swenson, 1988;Blumkin et al, 2012;Hayashi et al, 2013;Weber and Schram, 2013;Doerrenberg and Duncan, 2014;Abeler and Jager, 2015). 4 Other research examines labor supply responses to net-of-tax wages without explicit mention of taxes (Sillamaa, 1998(Sillamaa, , 1999a.…”

Incidence and Salience of Alcohol Taxes

“…1 There is also a growing literature on tax salience (Chetty 2009;Chetty, Looney, and Kroft 2009;Finkelstein 2009;Hayashi, Nakamura, and Gamage 2013), but this work still remains sparse relative to the incidence literature.…”

Behavioral Economics and the Public Sector

“…We know of no such study implementing an employer-employee relationship in the laboratory. Hayashi et al (2013) experimentally study distinct income tax schemes (specifically, no tax, a flat tax, a progressive tax and a wage subsidy) that are equivalent under full rationality. Their results show that labor supply differs across treatments.…”

“…The mechanisms are the following: (i) We regard a dollar of wage more salient than a dollar of tax. As a consequence, people will tend to focus more on gross wages than on net wages (as they do not fully take the taxes into account), which is what Fochmann et al (2010b) call 'gross wage illusion' (as observed by Fochmann et al, 2010b, andHayashi et al, 2013, in different settings). (ii) We expect people to consider a tax payment as a loss that, ceteris paribus, they would prefer to avoid.…”