Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26239
Authors: 
Blumkin, Tomer
Ruffle, Bradley J.
Ganun, Yosef
Year of Publication: 
2008
Series/Report no.: 
CESifo working paper 2194
Abstract: 
The public finance literature demonstrates the equivalence between consumption and labor income (wage) taxes. We construct an environment in which individuals make real labor-leisure choices and spend their earned income on real goods. We use this experimental framework to test whether a labor income tax and an equivalent consumption tax lead to an identical labor-leisure allocation. Despite controlling for subjects’ work ability and inherent labor-leisure preferences and not allowing for saving, subjects reduce their labor supply significantly more in response to an income tax than they do in response to an equivalent consumption tax. We discuss the economic implications of a policy shift from an income to a consumption tax.
Subjects: 
experimental economics
tax equivalence
income tax
consumption tax
behavioral economics
JEL: 
C91
H22
H24
H31
Document Type: 
Working Paper

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