The efficiency impact of uncertain taxes: an experimental study

Calvin Blackwell and Russell Sobel

Applied Economics Letters, 2020, vol. 27, issue 10, 859-872

Abstract: Uncertainty is generally assumed to have negative economic effects, but they are difficult to quantify due to measurement and definitional issues in the real world. We use a carefully controlled laboratory experiment to examine policy uncertainty and its impact on economic efficiency. We employ a double-auction design and compare the efficiency of a market with a known tax to that of a risky tax (of known probability) and an uncertain tax (of unknown probability). We find that the uncertain tax generates more deadweight loss than a risky tax of equal expected value.

Date: 2020
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DOI: 10.1080/13504851.2019.1646854

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