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 labor income (wage) taxes. We construct an environment in which individuals make real labor-leisure choices and spend their earned income on real goods. We use this experimental framework to test whether a labor income tax and an equivalent consumption tax lead to an identical labor-leisure allocation. Despite controlling for subjects' work ability and inherent labor-leisure preferences and not allowing for saving, subjects reduce their labor supply significantly more in response to an income tax than they do in response to an equivalent consumption tax. We discuss the economic implications of a policy shift from an income to a consumption tax.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 2194

Classification and Topics

• Classification: Wirtschaft ; Design of Experiments: Laboratory, Individual ; Taxation and Subsidies: Incidence ; Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes ; 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): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2008

Further information

• Handle: http://hdl.handle.net/10419/26239
• Last update: 10.03.2025, 11:42 AM CET