The Effects of Tax Salience and Tax Experience on Individual Work Efforts in a Framed Field Experiment

We present a simple model with tax biases that shows that tax perception depends on (1) the tax rate, (2) tax salience, and (3) tax experience. To test our model predictions, we first draw on the results of Fochmann et al. (2013) and show that tax misperceptions are lower with a higher tax rate. Second, we conduct a framed field experiment with 118 employees (no students) as subjects and a tax levied on the subjects' income from working in a real-effort experiment. In four treatments employing a direct and an indirect progressive tax scale, we show that a higher tax salience and tax experience level lead to lower tax misperception. Interestingly, the tax-experience effect does not play a role in simple cases with a proportional income tax.