Income taxes and the motivation to work: A review

Abstract

Research on the impact that income taxes have on the motivation to work has a rich history using a variety of methodologies. In this paper, we attempt to connect the various streams of research, showing how the conclusions are the same and where they differ to give researchers a starting point for future research. The literature review groups previous studies into (i) traditional theoretical and empirical archival approaches, (ii) survey and observa- tional studies, (iii) experimental evidence, (iv) general equilibrium models and cross-country research, and possi- bilities for future research. The present study concludes that the effect of income taxes on the motivation to work cannot be explained by elementary economic theory, such as income and substitution effects. It is argued that an individual’s preference for work and leisure can also be affected by how those effects are applied and described. It is not only income taxes but also the preference for work or the culture of leisure in the country of origin that substantially affect the motivation to work.