Labor supply responses to wages and taxes

There is a long tradition of estimating the labor supply response of individuals to tax changes. Most of the existing literature assumes that people respond to tax changes in the same way that they respond to wage changes. However, people’s perceptions and attitudes towards tax could make their labor supply respond differently to tax changes versus wage changes. Specifically, if a person dislikes that their tax money goes to fund public goods they do not agree with or is “wasted” by the government, the labor supply response estimated through tax rates could reflect this aversion towards their labor earnings funding an undesirable activity. The opposite could also be true where people recognize that taxes fund public goods that bring benefits to themselves or others and thus might be willing to forego some consumption to fund taxes. This project will clarify and empirically investigate the potential difference between labor supply responses to wage and tax changes. To this end, we run a large-scale online survey and randomized vignette experiments on a representative U.S. sample.