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Dan Ariely

Professor, Duke

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What are the effects of taxes on motivation and productivity?

One way to fight the budget deficit and income inequality is to change the marginal tax rate. The question is what are the implications of such change.

Some people think that this will cause the wealthy to stop working, others think that this will cause everyone to stop working, yet others think that a long as we care about how we do relative to others an increase of the tax rate will have no effect on effort and productivity.

What do you think will the effects of increased tax rate have on you and on the people you know?

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    Feb 21 2011: "Tax" seems such an emotional word that I begin to think we are too emotionally invested to think as clearly as we should over this important issue.
    Are there any peer-reviewed studies on the topic that can shed further light? Anecdotal evidence may not be accurate. Certainly, as someone with an above-average income derived entirely from paid employment, I have never changed my daily work life in response to a change in the marginal tax rate, but I don't know for sure if others are different or if it has a more subtle change in the long run; we humans are notoriously bad at understanding our own motivations.
    It probably also depends on what the tax is for. In my countries (Canada, UK) taxes pay for my medical care. In my near neighbour (USA) they would not; I would presumably pay a huge insurance company for the same service. If my payment goes up $100 per year to pay for better care does it make a difference to my motivation or productivity whether it is in the form of a tax or a payment to a corporation? I don't mean here to enter into the US debate on medicare, just to point out again that focus on "tax" as such over-simplifies the question. We are often motivated to work harder so we can buy something better; if Governments were demonstrably providing us with useful and valuable services, why would we be less motivated to buy them through "taxes" than through equivalent payments to large corporations?
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      Feb 21 2011: choice. if government provides chocolate, it will be milk and dark. if market provides chocolate, it is 2 x 10 meters shelf in the supermarket with heaps of products of different taste, size, filling, shape, color, pattern, softness, name, price, attached toy and you name it.

      and it is not theoretical. i lived under socialism, and i've seen the government providing http://en.wikipedia.org/wiki/Szaloncukor to decorate our xmas trees. it came in four tastes: pink, white, dark brown and light brown. noone had any idea what the actual tastes were supposed to be. light brown was a little coffee-ish, pink was probably some fruit. my favorite was light brown. i hated pink. i didn't know how much of a crap this was, until finally capitalism came, and now we have our own supermarkets with lotsa stuff.

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