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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 optimize fully with respect to the introduction of a tax, a growing body of research is proving that several heuristics are in place when people take decisions. We re-examine the well-known Liability Side Equivalence principle in the light of the concept of salience. While these two topics have been extensively investigated in isolation, this paper innovates on the previous literature in that it focuses on their joint effects. Is tax incidence dependent on whether the subjects face a salient rather than a non-salient tax? Does the salience of a tax exert a different effect depending on who is legally committed to bear the tax burden? We address these questions through a laboratory experiment in which one unit of a fictitious good is being traded through a double-auction market institution. Based on a panel data analysis, our contribution shows that point of collection matter and determine the economic incidence of tax. Additionally we found that the joint effect of salience and statutory incidence does not alter the informative efficiency, but has a positive effect on buyers’ allocational efficiency when the tax is levied on sellers.

Keywords: Tax incidence; Tax salience; Liability Side Equivalence; choice behaviour; laboratory. (search for similar items in EconPapers)
JEL-codes: C91 D41 D44 H22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-pub
Date: 2018-03-07
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https://mpra.ub.uni-muenchen.de/85044/1/MPRA_paper_85044.pdf original version (application/pdf)

Related works:
Journal Article: Experimental evidence on tax salience and tax incidence (2018) Downloads
Working Paper: Experimental Evidence on Tax Salience and Tax Incidence (2016) Downloads
Working Paper: Experimental Evidence on Tax Salience and Tax Incidence (2016) Downloads
Working Paper: Experimental evidence on tax salience and tax incidence (2016) Downloads
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