Experimental Evidence on Tax Salience and Tax Incidence

Andrea Morone, Francesco Nemore and Simone Nuzzo

MPRA Paper from University Library of Munich, Germany

Abstract: While a basic theoretical principle in public economics assumes that individuals’ behaviour is fully-optimizer with respect to the introduction of a tax, an increasing body of research is presenting evidence that agents decision making is often affected by non-negligible cognitive biases, which could be responsible for lower market performance as well as for deviations from standard theoretical predictions. This paper extends the latter strand of research focusing on two trend topics in public economics: tax salience and tax incidence. While the former refers to the prominence of the tax, the latter places emphasis on the statutory vs. factual division of tax payments. Is market performance affected by the salience of the tax? Is the incidence of a tax independent of which side of the market it is levied on (Liability Side Equivalence Principle, LES)? We address these questions through a laboratory experiment in which one unit of a fictitious good is traded through a double-auction market institution. Based on a panel data analysis, our contribution shows that a non-salient tax reduces both the allocational and informational efficiency of the market with respect to the instance in which the tax is salient. Moreover, we show that the Liability Side Equivalence Principle does not hold in practice.

Keywords: Tax incidence; Tax salience; Liability Side Equivalence; choice behaviour; laboratory. (search for similar items in EconPapers)
JEL-codes: C91 H2 H21 H30 (search for similar items in EconPapers)
Date: 2016-10-06
New Economics Papers: this item is included in nep-cbe and nep-exp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Experimental evidence on tax salience and tax incidence (2018)
Working Paper: Experimental Evidence on Tax Salience and Tax Incidence (2018)
Working Paper: Experimental Evidence on Tax Salience and Tax Incidence (2016)
Working Paper: Experimental evidence on tax salience and tax incidence (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:74319

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