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Title:Are income and consumption taxes ever really equivalent? evidence from a real-effort experiment with real goods PDF Logo
Authors:Blumkin, Tomer
Ruffle, Bradley J.
Ganun, Yosef
Issue Date:2010
Series/Report no.:Discussion paper series // Forschungsinstitut zur Zukunft der Arbeit 5145
Abstract:The public finance literature demonstrates the equivalence between consumption and laborincome (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 laborleisure 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.
Subjects:experimental economics
tax equivalence
income tax
consumption tax
behavioral economics
JEL:C91
H22
H31
Persistent Identifier of the first edition:urn:nbn:de:101:1-201010133312
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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