Premium
Net Wage Illusion in a Real‐Effort Experiment *
Author(s) -
Fochmann Martin,
Weimann Joachim,
Blaufus Kay,
Hundsdoerfer Jochen,
Kiesewetter Dirk
Publication year - 2013
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12007
Subject(s) - economics , incentive , wage , illusion , tax rate , labour economics , work (physics) , order (exchange) , income tax , net income , monetary economics , microeconomics , public economics , psychology , mechanical engineering , finance , neuroscience , engineering
In a controlled laboratory experiment, subjects had to fold letters in order to earn money. While the net income per letter was the same in the three treatments, the gross income varied and the tax rate was 0, 25, and 50 percent. Although work incentives should be the same in all treatments, subjects worked harder and longer when they were taxed. We conclude that this is because of a net wage illusion effect. The existence of this effect demonstrates that not only are the tax rate and the tax base of importance for work incentives, but the perception of a tax is also important.