TAX ILLUSION AND LABOR SUPPLY OF MARRIED-WOMEN - EVIDENCE FROM GERMANDATA

In the face of complex budget constraints the assumption that individu als act on the basis of complete knowledge of the tax system is a theo retical borderline. The specific issues examined in this empirical stu dy are (i) to what extent do consumers (here married women) perceive t heir true marginal tax rate when they make their labour supply decisio ns, and (ii) how does the perception of the marginal tax rate differ a mong various socioeconomic groups? Using German panel data we find tha t, against conventional wisdom, the assumption of complete knowledge o f the tax system does not fit the data well, and that education appear s to be the main determinant of a correct perception of the marginal t ax rate.