The effects of income windfalls on labour supply and tax compliance: experimental evidence
Fonseca, MA; Rahimi, L
Date: 26 September 2022
Article
Journal
Review of Behavioral Economics
Publisher
Now Publishers
Publisher DOI
Abstract
We examine the effect of cash windfalls on the supply of effort and tax compliance in a high stakes, real effort laboratory experiment. Income windfalls have a negative effect on effort, which mirrors existing evidence from the field. Tax compliance on labor income is only marginally affected by windfalls. When windfall income is ...
We examine the effect of cash windfalls on the supply of effort and tax compliance in a high stakes, real effort laboratory experiment. Income windfalls have a negative effect on effort, which mirrors existing evidence from the field. Tax compliance on labor income is only marginally affected by windfalls. When windfall income is taxable, we find a positive relationship between windfall size and compliance. We find no evidence that taxpayers switch from one type of evasion to the other as a function of whether windfalls are taxable or not. While compliance levels are lowest among the most productive, there are no differential effects of windfalls on compliance along the productivity dimension.
Economics
Faculty of Environment, Science and Economy
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