Circumstantial Risk: Impact of Future Tax Evasion and Labor Supply Opportunities on Risk Exposure

Philipp Doerrenberg, Denvil Duncan and Christopher Zeppenfeld ()
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Christopher Zeppenfeld: University of Cologne

No 7917, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper examines whether risk-taking in a lottery depends on the opportunity to respond to the lottery outcome through additional labor effort and/or tax evasion. Previous empirical attempts to answer this question face identification issues due to self-selection into jobs that facilitate tax evasion and labor effort flexibility. We address these identification issues using a laboratory experiment (N = 180). Subjects have the opportunity to invest earned income in a lottery and, depending on randomly assigned treatment states, have the opportunity to respond to the lottery outcome through evasion and/or extra labor effort. We find strong evidence that ex-post access to labor opportunities reduces ex-ante risk willingness while access to tax evasion has no effect on risk behavior. We discuss possible explanations for this result based on the existing literature.

Keywords: tax evasion; labor supply; risk behavior; lab experiment (search for similar items in EconPapers)
JEL-codes: G11 H21 H24 H26 J22 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2014-01
New Economics Papers: this item is included in nep-exp, nep-iue, nep-lab and nep-pub
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Published - revised version published in: Journal of Economic Behavior and Organization, 2015, 109, 85 - 100

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Related works:
Journal Article: Circumstantial risk: Impact of future tax evasion and labor supply opportunities on risk exposure (2015)
Working Paper: Circumstantial risk: Impact of future tax evasion and labor supply opportunities on risk exposure (2014)
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