Social and Behavioral Sciences Commons^™

Experimental Evidence Of Tax Salience And The Labor-Leisure Decision: Anchoring, Tax Aversion, Or Complexity?, Andrew Hayashi, Brent K, Nakamura, David Gamage

Andrew Hayashi

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: (1) extend the tax salience and price partitioning literatures to the labor supply context; (2) test the anchoring hypothesis by examining the effects of positive and negative wage surcharges on willingness to work; and (3) test whether responses to price partitioning result from imperfect calculation of all-inclusive prices or from deeper preferences. We …