Input versus Output Taxation in an Experimental International Economy

Arno Riedl and Frans van Winden (f.a.a.m.vanwinden@uva.nl)

No 03-058/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: This discussion paper led to a publication in 'European Economic Review' , 56(2) 216-32.

This paper is concerned with a policy oriented macroeconomic experiment involving an 'international' economy with a relatively small 'home' country and a large 'foreign' country. It compares the economic performance of two alternative tax systems as a means to finance unemployment benefits: a sales-tax-cum-labor-subsidy system versus a wage tax system. The two systems are applied to the home country, while the wage tax system always obtains in the foreign country. In stark contrast with expectations of experts the sales tax system clearly outperforms the wage tax system, using standard economic indicators. It is argued that producers' reluctance to incur costs up-front while being uncertain about product prices can explain this outcome. Several pieces of evidence are provided to support this claim. The results strongly suggest that behavioral aspects have to be taken into account also in applied macroeconomic models.

Keywords: laboratory experiment; wage tax; sales tax; macroeconomic policy, (search for similar items in EconPapers)
JEL-codes: A10 C90 C91 D21 D80 E62 H20 (search for similar items in EconPapers)
Date: 2003-07-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://papers.tinbergen.nl/03058.pdf (application/pdf)

Related works:
Journal Article: Input versus output taxation in an experimental international economy (2012)
Working Paper: Input versus Output Taxation in an Experimental International Economy (2004)
Working Paper: Input Versus Output Taxation in an Experimental International Economy (2003)
Working Paper: INPUT VERSUS OUTPUT TAXATION IN AN EXPERIMENTAL INTERNATIONAL ECONOMY (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20030058

Access Statistics for this paper

More papers in Tinbergen Institute Discussion Papers from Tinbergen Institute Contact information at EDIRC.
Bibliographic data for series maintained by Tinbergen Office +31 (0)10-4088900 (discussionpapers@tinbergen.nl).