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March 6, 2006

Can tax policy curb workaholism?

Ann Arbor, MICH.—Tax policy may moderate workaholism, just as cigarette excise taxes can curtail smoking, says a University of Michigan economist.

"High-income, highly educated people are particularly likely to suffer from workaholism with regard to deciding when to retire—going cold turkey on their addictive behavior," said Joel Slemrod, professor of business economics and public policy at U-M's Stephen M. Ross School of Business and director of the Office of Tax Policy Research.

Workaholism, he says, has been linked to a variety of health problems, including exhaustion, stress and high blood pressure, and can take an emotional and mental toll on a worker's family.

Unlike cigarette excise taxes, which are highly regressive (those with lower incomes pay a greater proportion of income in taxes), the appropriate corrective policy for workaholics—who tend to make more money—might involve a more progressive income tax burden (those with higher incomes pay a higher proportion of income in taxes) than otherwise, Slemrod says.

Using data from U-M's Retirement History Survey and Panel Study of Income Dynamics, Slemrod and colleague Daniel Hamermesh of the University of Texas found that workers with more education are less likely to follow through with their intended plans to retire. In fact, each additional year of schooling reduces the likelihood of being fully or partly retired by about as much as one-third of a year's increase in the planned age of retirement.

"The results suggest that certain more educated and higher-income respondents simply cannot help themselves," Slemrod said. "They express an expectation of retirement, but when the time comes, they are less likely to be retired."

According to the study, workaholics misjudge the benefits and costs of working more hours in their careers and working beyond their intended retirement date. Moreover, workaholics acquire their addiction early in their careers.

Slemrod and Hamermesh say that while their results are consistent with addictive behavior, something else may be going on.

"An alternative cause may be that people develop apparent workaholic behavior because they develop addictions to the consumer goods whose increased purchase is made possible by the fruits of their work," Slemrod said.

 

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Joel Slemrod

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U-M Office of Tax Policy Research

 

Contact: Bernie DeGroat
Phone: (734) 936-1015 or 647-1847