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Tax Liability Side Equivalence in Gift-Exchange Labor Markets

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  • Arno Riedl

    ()
    (CREED, Faculty of Economics and Econometrics, University of Amsterdam)

  • Jean-Robert Tyran

    ()
    (Dept of Economics, University of St. Gallen)

Abstract

Tax Liability Side Equivalence (tax LSE) claims that the statutory incidence of a tax is irrelevant for its economic incidence. In gift-exchange labor markets, firms provide a gift to workers by paying high wages, and workers reciprocate by providing high efforts. Tax LSE is theoretically predicted to hold in gift-exchange markets if workers' effort choices exclusively depend on the net wage, but breaks down if they partially depend on the gross wage paid to workers. We experimentally test tax LSE in a gift-exchange market and find that it holds surprisingly well.

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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 03-065/1.

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Date of creation: 19 Aug 2003
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Handle: RePEc:dgr:uvatin:20030065

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Keywords: Tax incidence; Efficiency wages; Gift exchange; Experiments;

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