How does labor supply react to different tax rates? A field inquiry

Abstract

Participants (96 students) were divided into three groups. Subjects in Group 1 were asked their labor supply, being their income burdened by a 25% tax rate. Then they were asked their labor supply if the tax rate were 40%. Subjects in G2 were asked their labor supply with a 25% tax rate, and subjects in G3 with a 40% tax rate. We first compared labor supplies within G1; then we compared labor supplies between G2 and G3. Finally we compared the two comparisons. In G1, subjects' labor supply is different, negatively related with the tax rate: this is probably due to how the questions are put, which suggest different answers. In fact, comparing G2 and G3, the labor supply is almost the same. Students who are part-time workers and students who are not supply different amounts of labor. There is no difference at all when comparing G2 and G3 as for non-working students, being the whole difference between G2 and G3 due to working students, who probably compare the tax rate they pay on their real income to the ones suggested in the questionnaire. Singling out non-biased responders, i.e. non-working students in G2 and G3, the tax rate on income, if given, independently of its level, does not influence the labor supply.labour supply, taxation, individual behaviour