Workers carry on regardless of tax rate

November 25, 1994

High taxes do not discourage people from working, say researchers in the psychology of economics.

The comments come a week before the budget -- psychologists are complaining that economists are not using psychology to help them decide fiscal policy.

Alan Lewis, director of the Bath University centre for economic psychology, and Paul Webley, head of psychology at Exeter University, said that 75 per cent of the population do not change their work rate because of income tax rises. The rest divide almost equally into those who work harder to make up the difference and those who work less hard, because they are discouraged.

"As far as economists are concerned high taxes are bound to be a disincentive to work," said Dr Lewis. "In practice people do not even know what their marginal income tax rates are."

People who do respond to tax changes tend to be secondary earners and younger rather than older people.

The psychologists' studies have also uncovered great ignorance of fiscal issues. For example, the overall tax load has probably increased in recent years, says Dr Lewis, because of increases in indirect taxes. Yet surveys show that people believe they are better off because the "highly visible" income tax has decreased.

The researchers, with Adrian Furnham, are about to publish a book on people's perceptions of the economy.

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