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Article
Experimental Evidence of Tax Salience and the Labor-Leisure Decision: Anchoring, Tax Aversion, or Complexity?
New York University Law and Economics Working Papers
  • Andrew T. Hayashi, NYU School of Law - Furman Center for Real Estate and Urban Policy
  • Brent K. Nakamura, University of California, Berkeley
  • David Gamage, University of California, Berkeley - Boalt Hall School of Law
Document Type
Article
Comments
Public Finance Review, Vol. 41, pp. 203, 2013
Abstract

Recent research in marketing and public economics suggests that consumers underestimate the effects of taxes and surcharges on total purchase prices when taxes and surcharges are made less salient. The leading explanation is that consumers anchor on base prices and underadjust for surcharges. We perform experiments that: extend the tax salience and price partitioning literatures to the labor supply context; test the anchoring hypothesis by examining the effects of positive and negative wage surcharges on willingness to work; and test whether responses to price partitioning result from imperfect calculation of all-inclusive prices or from deeper preferences. We reject the anchoring hypothesis and find that subjects are less willing to work both when their wages are partitioned with positive and with negative surcharge components. We also find evidence that partitioned pricing effects result from cognitive limitations and possibly from responses to complexity.

Date of Authorship for this Version
6-1-2012
Keywords
  • Experiment,
  • Framing,
  • Partitioned Pricing,
  • Labor Supply,
  • Taxation,
  • Tax Salience
Disciplines
Citation Information
Andrew T. Hayashi, Brent K. Nakamura and David Gamage. "Experimental Evidence of Tax Salience and the Labor-Leisure Decision: Anchoring, Tax Aversion, or Complexity?" (2012)
Available at: http://works.bepress.com/david_gamage/9/