Input versus Output Taxation in an Experimental International Economy

Arbeitspapier

This paper is concerned with a policy oriented macroeconomic experiment involving an 'international' economy with a relatively small 'home' country and a large 'foreign' country. It compares the economic performance of two alternative tax systems as a means to finance unemployment benefits: a sales-tax-cum-labor-subsidy system versus a wage tax system. The two systems are applied to the home country, while the wage tax system always obtains in the foreign country. In stark contrast with expectations of experts the sales tax system clearly outperforms the wage tax system, using standard economic indicators. It is argued that producers' reluctance to incur costs up-front while being uncertain about product prices can explain this outcome. Several pieces of evidence are provided to support this claim. The results strongly suggest that behavioral aspects have to be taken into account also in applied macroeconomic models.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 1344

Classification and Topics

• Classification: Wirtschaft ; General Economics: General ; Fiscal Policy ; Information, Knowledge, and Uncertainty: General ; Taxation, Subsidies, and Revenue: General ; Firm Behavior: Theory ; Design of Experiments: Laboratory, Individual ; Design of Experiments: General
• Subject: laboratory experiment ; wage tax ; sales tax ; macroeconomic policy ; behavioral economics ; Lohnsteuer ; Umsatzsteuer ; Arbeitslosenversicherung ; Steuerwettbewerb ; Zwei-Länder-Modell ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Riedl, Arno ; van Winden, Frans
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/20614
• Last update: 10.03.2025, 11:42 AM CET