The Impact of Earmarked Taxes on Supply Curve Shifts: A Laboratory Experiment

Shigeharu Okajima, Taro Shinoda, Yukihiko Funaki and Hiroko Okajima
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Shigeharu Okajima: Department of Economics, Osaka University of Economics
Taro Shinoda: Shinshu University
Yukihiko Funaki: School of Political Science and Economics, Waseda University
Hiroko Okajima: School of Economics, Nagoya University

No 2410, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: In this study, we examine how ordinary taxes and earmarked taxes influence tax passthrough in a market experiment. We hypothesize that tax pass-through is lower for earmarked taxes than for ordinary taxes and that this difference depends on market conditions, specifically the balance between the trade surpluses for sellers and buyers. Our findings confirm that ordinary taxes result in full tax pass-through, whereas earmarked taxes result in less pass-through. Under earmarked taxes, sellers adjust the level of pass-through based on their trade surplus relative to the buyers’ trade surplus. These results underscore the need to distinguish between tax types. The results of our study provide novel insights into the resource allocation effects of different tax types, offering significant implications for policymakers seeking to regulate goods with externalities through taxation.

Keywords: ordinary taxes; earmarked taxes; statutory incidence; market experiment (search for similar items in EconPapers)
Pages: 20 pages
Date: 2025-01
New Economics Papers: this item is included in nep-exp and nep-pub
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