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  • Journal of Economic Behavior & Organization

Tax Aversion in Labor Supply

By: Judd B. Kessler and Michael I. Norton
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Abstract

In a real-effort laboratory experiment, labor supply decreases more with the introduction of a tax than with a financially equivalent drop in wages. This “tax aversion” is large in magnitude: when we decompose the productivity decrease that arises from taxation, we estimate that 40% is due to the lower net wage and the remaining 60% to tax aversion. This tax aversion affects labor supply more on the extensive margin (working less) than on the intensive margin (being less productive while working). The aversion is equally strong whether tax revenue goes to the U.S. government or back to the experimenter (a “laboratory tax”). We discuss the implications of our results for the relationship between labor supply and taxation.

Keywords

Taxes; Labor Supply; Productivity; Experiments; Wages; Human Capital; Performance Productivity; Taxation

Citation

Kessler, Judd B., and Michael I. Norton. "Tax Aversion in Labor Supply." Special Issue on Taxation, Social Norms and Compliance. Journal of Economic Behavior & Organization 124 (April 2016): 15–28.
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About The Author

Michael I. Norton

Negotiation, Organizations & Markets
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More from the Authors
  • Opportunity Neglect: An Aversion to Low-probability Gains By: Emily Prinsloo, Kate Barasz, Leslie K. John and Michael I. Norton
  • Relational Diversity in Social Portfolios Predicts Well-Being By: Hanne K. Collins, Serena F. Hagerty, Jordi Quoidbach, Michael I. Norton and Alison Wood Brooks
  • The Gender Minority Gaps in Confidence and Self-Evaluations By: Billur Aksoy, Christine L. Exley and Judd B. Kessler
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