Are income and consumption taxes ever really equivalent? evidence from a real-effort experiment with real goods

Arbeitspapier

The public finance literature demonstrates the equivalence between consumption and laborincome (wage) taxes. We introduce an experimental paradigm in which individuals make real labor-leisure choices and spend their earned income on real goods. We use this paradigm to test whether a labor-income tax and an equivalent consumption tax lead to identical laborleisure allocations. Despite controlling for subjects' work ability and inherent labor-leisure preferences and disallowing saving, subjects reduce their labor supply significantly more in response to an income tax than to an equivalent consumption tax. We discuss the economic implications of a policy shift to a consumption tax.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 5145

Classification and Topics

• Classification: Wirtschaft ; Design of Experiments: Laboratory, Individual ; Taxation and Subsidies: Incidence ; Fiscal Policies and Behavior of Economic Agents: Household
• Subject: experimental economics ; tax equivalence ; income tax ; consumption tax ; behavioral economics ; Einkommensteuer ; Verbrauchsteuer ; Steuerinzidenz ; Privater Haushalt ; Test ; Verhaltensökonomik

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Blumkin, Tomer ; Ruffle, Bradley J. ; Ganun, Yosef
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/45983
• URN: urn:nbn:de:101:1-201010133312
• Last update: 10.03.2025, 11:42 AM CET