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Does the Wage Tax System Cause Budget Deficits? A Macro-economic Experiment

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  • Riedl, Arno
  • van Winden, Frans

Abstract

In this paper we investigate experimentally the economic functioning of a wage tax system for financing unemployment benefits in an international economy, in particular in reaction to budget deficits and tax adjustment. Our results support the hypothesis that due to out-of-equilibrium price uncertainty producers are reluctant to employ inputs. We also observe a downward pressure on wages exacerbated by an over-supply of labor by consumers. These observations can explain the budget deficits found. Furthermore, we find that tax adjustments in order to facilitate a balancing of the budget has strong adverse effects on unemployment and real GDP. Copyright 2001 by Kluwer Academic Publishers

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  • Riedl, Arno & van Winden, Frans, 2001. "Does the Wage Tax System Cause Budget Deficits? A Macro-economic Experiment," Public Choice, Springer, vol. 109(3-4), pages 371-394, December.
    • Handle: RePEc:kap:pubcho:v:109:y:2001:i:3-4:p:371-94
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    Citations

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    Cited by:

    1. Baboo M Nowbutsing, 2011. "Fragility of Comparative Advantage in Higher Dimensions: An Experimental Investigation," Journal of Economics and Behavioral Studies, AMH International, vol. 2(4), pages 151-170.
    2. Fortuna Casoria & Arno Riedl, 2013. "Experimental Labor Markets And Policy Considerations: Incomplete Contracts And Macroeconomic Aspects," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 398-420, July.
    3. Bernd Irlenbusch & Matthias Sutter, 2006. "An experimental analysis of voting in the Stability and Growth Pact in the European Monetary Union," Public Choice, Springer, vol. 129(3), pages 417-434, December.
    4. Arthur J. H. C. Schram, 2008. "Experimental Public Choice," Springer Books, in: Readings in Public Choice and Constitutional Political Economy, chapter 32, pages 579-591, Springer.
    5. Noussair, C.N. & Pfajfar, D. & Zsiros, J., 2011. "Frictions, Persistence, and Central Bank Policy in an Experimental Dynamic Stochastic General Equilibrium Economy," Discussion Paper 2011-030, Tilburg University, Center for Economic Research.
    6. Guidon Fenig & Mariya Mileva & Luba Petersen, 2013. "Asset Trading and Monetary Policy in Production Economies," Discussion Papers dp13-08, Department of Economics, Simon Fraser University, revised Aug 2014.
    7. Arno Riedl, 2009. "Behavioral and Experimental Economics Can Inform Public Policy: Some Thoughts," CESifo Working Paper Series 2902, CESifo.
    8. Sailesh Gunessee, 2010. "Strategic Tax Competition: An Experimental Study," Public Finance Review, , vol. 38(2), pages 217-243, March.
    9. Noussair, C.N. & Plott, C. & Riezman, R., 2007. "Production, trade and exchange rates in large experimental economies," Other publications TiSEM 3bf683fe-0650-4e8a-8682-c, Tilburg University, School of Economics and Management.
    10. John Duffy, 2008. "Macroeconomics: A Survey of Laboratory Research," Working Paper 334, Department of Economics, University of Pittsburgh, revised Jun 2014.
    11. Fortuna Casoria & Arno Riedl, 2013. "Experimental Labor Markets And Policy Considerations: Incomplete Contracts And Macroeconomic Aspects," Journal of Economic Surveys, Wiley Blackwell, vol. 27(3), pages 398-420, July.
    12. Guidon Fenig & Mariya Mileva & Luba Petersen, 2013. "Leave the bubble alone!: Deflating asset price bubbles in an experimental macroeconomy," Discussion Papers dp16-10, Department of Economics, Simon Fraser University, revised Aug 2016.

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