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Are Income and Consumption Taxes Ever Really Equivalent? Evidence from a Real-Effort Experiment with Real Goods

Tomer Blumkin (tomerblu@bgu.ac.il), Bradley Ruffle and Yosef Ganun (ganun@bgu.ac.il)
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Tomer Blumkin: Department of Economics Ben-Gurion University, Israel
Yosef Ganun: Department of Economics, Ben Gurion University, Israel

No 801, Working Papers from Ben-Gurion University of the Negev, Department of Economics

Abstract: 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.

Keywords: experimental economics; tax equivalence; income tax; consumption tax; behavioraleconomics. (search for similar items in EconPapers)
JEL-codes: C91 H22 H24 H31 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (17)

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http://in.bgu.ac.il/en/humsos/Econ/Workingpapers/0801.pdf (application/pdf)

Related works:
Journal Article: Are income and consumption taxes ever really equivalent? Evidence from a real-effort experiment with real goods (2012) Downloads
Working Paper: Are Income and Consumption Taxes Ever Really Equivalent? Evidence from a Real-Effort Experiment with Real Goods (2010) Downloads
Working Paper: Are Income and Consumption Taxes ever really Equivalent? Evidence from a Real-Effort Experiment with Real Goods (2008) Downloads
Working Paper: Are Income and Consumption Taxes Ever Really Equivalent? Evidence from a Real-Effort Experiment with Real Goods (2007) Downloads
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