Robert Dur (Erasmus University Rotterdam) – Tax Misperceptions and Labor Supply: A Two-Wave Survey Experiment in the Netherlands

Room : P61

(joint work with Job Harms and Arjan Non)

Abstract: In countries with a complex tax system, it can be difficult for people to correctly assess their effective marginal tax rate. Misperceptions of the marginal tax rates can, in turn, lead to inefficient labor supply decisions. We conduct a two-wave survey experiment among a representative sample of the Dutch population (N~2,500) to assess what misperceptions people have and whether information provision can influence their misperception and, in turn, their labor supply. In one information treatment, we provide information on the modal effective marginal tax rates in three different income brackets. In another treatment, we encourage respondents to visit a website that allows them to calculate their effective marginal tax rate. In the third treatment, we combine the two. Our data show that people with relatively low gross income tend to overestimate their effective marginal tax rate, while higher incomes tend to underestimate it. We find that providing information increases the accuracy of respondents’ estimate of their effective marginal tax rate two months later. There are also important consequences for labor supply. Among those who initially overestimate their effective marginal tax rate, work hours increase by about 1,5 hours per week. The implied compensated wage elasticity of labor supply is close to one.

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