Understanding how taxes and benefits affect take-home pay can shape whether people choose to work more. A Dutch study of about 2,000 working-age adults found that only one in four accurately understood these incentives, with low-income workers particularly likely to overestimate the effective tax rate.
Providing simple information about the financial gains from additional earnings improved understanding and led initially pessimistic workers to increase working time by about 1.5 hours per week, or 8%.
The findings suggest that tax-and-benefit incentives could be made clearer and more personalized, helping people make better-informed work decisions while potentially supporting employment.
