Will paying income taxes make you work harder?

April 17, 2017 by Greta Guest, University of Michigan
Credit: University of Michigan

Filing the annual income tax return is never a pleasant chore, but do taxes affect your motivation to work?

The findings from economic research have been mixed. But a new study by University of Michigan professors Scott Rick and Katherine Burson sheds new light on the psychology of taxes. Their results suggest your views of social equity and affect your motivation to work when your wages are taxed.

"The natural assumption is that, if anything, having your income taxed would decrease motivation," said Rick, associate professor of marketing at the Ross School of Business. "The macroeconomic research isn't conclusive, so we wanted to look at psychological reactions, and that's best assessed at the individual level. Are different types of affected differently by income taxes?"

Rick, Burson and co-author Gabriele Paolacci of the Rotterdam School of Management at Erasmus University conducted two experiments that found that increases motivation and productivity for people who believe in redistribution to promote equality and in government intervention.

"When we looked at the overall impact of income tax on the motivation to work, we were surprised to see no significant effect," said Burson, associate professor of marketing at Michigan's Ross School of Business. "But then it occurred to us that people have really different beliefs about government intervention and the redistribution of wealth.

"For example, I told Scott that I was pretty sure my taxes were being misspent, but he believed that taxes were going back into his community. We were surprised by that divergence. When we looked at our participants' views about government intervention and subsequent redistribution, we discovered a similar divergence."

The authors ran two experiments that revealed the phenomenon. In the first, test subjects were asked to complete a counting task and randomly assigned to two groups. One group was simply paid 20 cents for every correct answer. The other group was initially paid 40 cents per correct answer, but with a 20-cent "tax" deducted to pay students participating in another study who couldn't earn their own money. Participants could quit the task, which was tedious, at any time.

They then took a test to gauge their opinions on social equity, redistribution and the role of government.

The results showed that taxes were de-motivating to people opposed to redistribution or government intervention (or both)—they quit the task earlier—but motivating to those in favor of redistribution and government intervention.

A second experiment determined if those motivated by the tax were just "being nice" or truly felt a motivational call to duty when taxed. In this test there were three groups—no tax (20 cents/correct answer), tax (30 cents/correct answer minus a 10-cent tax) and a "match" group told that each correct answer would earn them 20 cents and generate 10 cents for other students (to be paid by the administrators).

The match group wasn't motivated any more than the control group regardless of their opinions on redistribution or government. As in the first experiment, only those in the tax group who believed strongly in redistribution and government intervention appeared especially motivated.

"Objectively the match and tax groups in that experiment had the same outcome, but there was something about being taxed that was motivating for people with that particular worldview," Rick said. "If it was just because they were nice people, they should've been motivated by both opportunities to generate money for others, but they weren't."

The results suggest that people who believe in redistribution and would benefit from reminders of what their tax dollars pay for. In addition to filing tax returns, Rick and Burson suggest that a reminder note might be useful to send along with the receipt. It could either thank them for their contribution or inform them on what taxes help fund.

For those de-motivated by an income tax? Perhaps there are ways to emphasize the fact that not all tax revenue pays to solve social ills—that it funds defense and infrastructure.

"People don't always know where their tax money goes, so they imagine what happens with it," Rick said. "Information on what it pays for, framed the right way, might help people with both views."

Explore further: Feeling—not being—wealthy drives opposition to wealth redistribution

More information: Income Tax and the Motivation to Work: papers.ssrn.com/sol3/papers.cf … ?abstract_id=2655424

Related Stories

Low incomes make poor more conservative, study finds

November 16, 2010

You might think that in a time when more money is concentrated in fewer hands and incomes vary wildly from billions to subsistence, poor people might increase their support for government policies that offer some help.

Obamas Paid Too Much in Taxes, Says Tax Expert

May 17, 2010

(PhysOrg.com) -- President Barack Obama and first lady Michelle Obama paid too much in taxes last year compared with their peers in the same income group, says Dorothy Brown, professor of tax law at Emory University School ...

What do tax policy experts think about US tax policy?

April 12, 2013

Large majorities of tax policy experts in the U.S. favor a graduated personal income tax, taxing long-term capital gains as ordinary income, a net income tax on corporations and extending the retail sales tax to services.

Recommended for you

In the gaping mouth of ancient crocodiles

June 18, 2018

The mouth of today's crocodilians inspires fear and awe, with their wide gape and the greatest known bite force in the vertebrate animal kingdom. However, this apex predator of today and its modus of attack (its mouth) had ...

Secrets of extinct cow with face like a bulldog revealed

June 15, 2018

An international team of scientists have used the latest genetic and anatomical techniques to study the remains of a cow with a short face like a bulldog that fascinated Charles Darwin when he first saw it in Argentina 180 ...


Please sign in to add a comment. Registration is free, and takes less than a minute. Read more

Click here to reset your password.
Sign in to get notified via email when new comments are made.