Open Access Article SciPap-867
Who Reacts to Income Tax Rate Changes? the Relationship Between Income Taxes and the Motivation to Work: The Case of Azerbaijan
by Orkhan Nadirov 1,*, Bruce Dehning 2, Khatai Aliyev 3 and Minura Iskandarova 4

1 Faculty of Management and Economics, Department of Finance and Accounting, Tomas Bata University in Zlín, Mostní 5139, Zlín 760 01, Czechia

2 Argyros School of Business and Economics, Chapman University, Orange, California , United States of America

3 Department of World Economy, Baku Engineering University, Khirdalan city, Hasan Aliyev str. 120, Baku, Absheron AZ0101, Azerbaijan

4 Department of World Economy, Baku Engineering University, Khirdalan city, Hasan Aliyev str. 120, Baku, Absheron AZ0101, Azerbaijan

* Authors to whom correspondence should be addressed.

Abstract: This research investigates the effects of income taxation on the motivation to work by employing a survey method for the Azerbaijan population. The two research questions of interest are, if subjects consider income taxes when deciding how many hours to work and how subjects would react to a hypothetical 5% income tax rate increase. Also examined are the responses to these questions between subjects with different socio-economic characteristics. Examining cross-sectional data of 326 respondents reveals that income taxes do not influence Azerbaijan labour market participants’ motivation to work, regardless of their socio-economic characteristics. Empirical results indicate that reactions to hypothetical income tax rate increases show that the strength of response differs significantly across gender, age, marital status, field of employment, and income level. However, there are no significant results for differences in gender and after-tax wages. Our study contributes to the labour supply literature with the theory that after an income tax is imposed, both the average price and the average utility of leisure is greater for high wage earners than low wage earners.

Keywords: Income Taxes, Motivation To Work, Survey Design, OLS Method, Azerbaijan

JEL classification:   H24 - Personal Income and Other Nonbusiness Taxes and Subsidies,   J22 - Time Allocation and Labor Supply

SciPap 2017, 25(2), 867

Received: 31 December 2016 / Accepted: 20 March 2017 / Published: 2 June 2017