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Tax Liability Side Equivalence in Gift-Exchange Labor Markets

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  • Jean-Robert Tyran

    ()

  • Arno Riedl

    ()

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 giftexchange market and find that it holds surprisingly well.

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Bibliographic Info

Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2003 with number 2003-15.

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Length: 36 pages
Date of creation: Aug 2003
Date of revision:
Handle: RePEc:usg:dp2003:2003-15

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

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  1. Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 2003. "Gift Exchange and Reciprocity in Competitive Experimental Markets," Labor and Demography, EconWPA 0305002, EconWPA.
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