Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96724
Authors: 
Doerrenberg, Philipp
Duncan, Denvil
Year of Publication: 
2014
Series/Report no.: 
IZA Discussion Paper 8137
Abstract: 
This paper studies the effect of tax evasion on the economic incidence of sales taxes. We design a laboratory experiment in which buyers and sellers trade a fictitious good in double auction markets. A per-unit tax is imposed on sellers, and sellers in the treatment group are provided the opportunity to evade the tax whereas sellers in the control group are not. We find that the market equilibrium price in the treatment group is economically and statistically lower than in the control group. This result is consistent with a theoretical model in which access to evasion opportunities reduces the effective tax rate and therefore dampens real behavioral responses. Our findings suggest that the benefits of tax evasion are not limited to the side of the market with access to evasion but are partly shifted to the non-evading side of the market. We discuss the implications of our findings for the distributional and welfare effects of taxes.
Subjects: 
tax evasion
tax incidence
double auction
JEL: 
H21
H22
H26
H3
D44
Document Type: 
Working Paper

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