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

Tomer Blumkin (), Bradley Ruffle and Yosef Ganun ()
Additional contact information
Tomer Blumkin: Ben Gurion University
Yosef Ganun: Ben Gurion University

No 5145, IZA Discussion Papers from Institute of Labor Economics (IZA)

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)
Pages: 31 pages
Date: 2010-08
New Economics Papers: this item is included in nep-acc, nep-cbe, nep-evo, nep-exp and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Are income and consumption taxes ever really equivalent? Evidence from a real-effort experiment with real goods (2012)
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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