Research

How does labor supply respond to a change in the timing of tax payments? I leverage a quasi-natural experiment in France that increased the frequency of income tax payments, shifting from three quarterly installments to twelve monthly deductions, holding the total tax burden constant. Using matched survey and administrative data, I apply a triple difference-in-differences strategy and estimate a decrease in hours worked by 2 percent. These findings are in line with predictions of an inattentive agent model in which taxes are salient in periods in which they are paid. Interpreting the estimates through an inattentive-agent model, I map the reform’s effect into a wage-equivalent change. Because taxes are less salient when not paid every period, a 10% tax increase reduces hours as much as an 8.1% cut in the gross wage. Since the reduction in hours comes mainly from workers shirking at work, the findings imply that inattention acts as a positive productivity externality.