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

Tomer Blumkin, Bradley Ruffle and Yosef Ganun

European Economic Review, 2012, vol. 56, issue 6, 1200-1219

Abstract: The public finance literature demonstrates the equivalence between consumption and labor-income (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 labor-leisure 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.

Keywords: Experimental economics; Tax equivalence; Income tax; Consumption tax; Behavioral economics (search for similar items in EconPapers)
JEL-codes: C91 H22 H31 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (63)

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Related works:
Working Paper: Are Income and Consumption Taxes Ever Really Equivalent? Evidence from a Real-Effort Experiment with Real Goods (2010)
Working Paper: Are Income and Consumption Taxes Ever Really Equivalent? Evidence from a Real-Effort Experiment with Real Goods (2008)
Working Paper: Are Income and Consumption Taxes ever really Equivalent? Evidence from a Real-Effort Experiment with Real Goods (2008)
Working Paper: Are Income and Consumption Taxes Ever Really Equivalent? Evidence from a Real-Effort Experiment with Real Goods (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:56:y:2012:i:6:p:1200-1219

DOI: 10.1016/j.euroecorev.2012.06.001

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