How work effort responds to wage taxation: A non-linear versus a linear tax experiment

This is one of a series of experiments by the author testing predictions of the labor supply model that comes from the theory of single-period, single -person utility maximization, where utility is a quasi-concave function of consumption and leisure, and where consumption is assumed a normal good. Th is paper studies how people adjust their work effort in response to a gross wage rate change under a non-linear tax system in comparison to a linear t ax system. The linear tax system is chosen as the Hausman equivalent of the non-linear system at the starting wage rate. The prediction is that work e ffort will be higher under the linear tax system after the gross wage rate change. This experiment supports the theorem. The implication is that tax f lattening will yield more labor and possibly more tax revenues as wage rate s rise. (C) 1999 Elsevier Science B.V. All rights reserved.