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Experimental Evidence of Market Reactions to New Consumption Taxes

Author

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  • STEVEN J. KACHELMEIER
  • STEPHEN T. LIMBERG
  • MICHAEL S. SCHADEWALD

Abstract

. Consumption taxes of various forms are of increasing importance worldwide. This study employs a laboratory market design to investigate differential market reactions to three consumption tax forms while holding all other factors constant. Ten laboratory markets were conducted, each involving nine volunteer participants. Market participants were randomly assigned to roles analogous to wholesalers, retailers, or consumers of a market good. The three tax forms were (1) a sales tax imposed on retail consumers of a commodity, (2) a gross†receipts tax imposed on retail sellers, and (3) a value†added tax imposed on sellers at two levels of production. At least three markets were conducted under each tax regime as a basis for experimental comparison. The tax rates used in each structure were chosen so that a competitive model would predict different equilibrium prices but the same tax burdens (the sum of explicit and implicit taxes) across the three tax regimes. Results generally support these predictions, with somewhat stronger support for equivalent tax revenues (explicit taxes collected) than for equivalent tax incidence (distribution of tax burdens after price adjustments). Observed tax incidence differences suggest that market agents who are called upon to explicitly pay taxes actually bear relatively lower tax burdens after implicit tax price adjustments. In general, however, price shifting is consistent with the competitive model, supporting the economic dictum that the choice among alternative designations of taxpaying agents is more a question of form than of economic substance. Résumé. Les taxes à la consommation revêtant diverses formes augmentent en importance à travers le monde. Les auteurs ont conçu un modèle de marché expérimental dans le but d'étudier les différentes réactions du marché à trois formes de taxe à la consommation, tout en maintenant constants l'ensemble des autres facteurs. Dix marchés expérimentaux ont été créés, chacun d'eux faisant intervenir neuf participants volontaires à qui étaient attribués aléatoirement des rôles analogues à ceux de grossistes, de détaillants ou de consommateurs d'un marché de produits. Les trois formes de taxe étaient les suivantes: (1) une taxe de vente s'appliquant aux consommateurs d'un bien sur le marché de détail, (2) une taxe sur les encaissements bruts s'appliquant aux détaillants et (3) une taxe sur la valeur ajoutée s'appliquant aux vendeurs, à deux échelons de production. Au moins trois marchés sous chaque régime fiscal ont servi de base de comparaison expérimentale. Les taux utilisés dans chaque structure ont été choisis de telle sorte qu'un modèle concurrentiel arrive à des prix d'équilibre différents mais à une fardeau fiscal identique (la somme des taxes explicites et implicites) sous les trois régimes. Dans l'ensemble, les résultats obtenus confirment ces prédictions, plus encore dans le cas des recettes fiscales équivalentes. Les différentes incidences fiscales observées donnent à penser que les agents du marché de qui l'on réclame explicitement des taxes supportent, en réalité, un fardeau fiscal relativement moins élevé, une fois opérés les ajustements de prix relatifs aux taxes implicites. De manière générale, cependant, les variations de prix sont conformes au modèle concurrentiel, ce qui corrobore cet axiome économique selon lequel le choix des agents à qui doit être attribué le rôle de contribuable est davantage une question de forme que de substance économique.

Suggested Citation

  • Steven J. Kachelmeier & Stephen T. Limberg & Michael S. Schadewald, 1994. "Experimental Evidence of Market Reactions to New Consumption Taxes," Contemporary Accounting Research, John Wiley & Sons, vol. 10(2), pages 505-545, March.
  • Handle: RePEc:wly:coacre:v:10:y:1994:i:2:p:505-545
    DOI: 10.1111/j.1911-3846.1994.tb00404.x
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    References listed on IDEAS

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    Cited by:

    1. Rupert Sausgruber & Jean-Robert Tyran, 2008. "Tax Salience, Voting, and Deliberation," Discussion Papers 08-21, University of Copenhagen. Department of Economics.
    2. Rainald Borck & Dirk Engelmann & Wieland Müller & Hans‐Theo Normann, 2002. "Tax Liability‐Side Equivalence in Experimental Posted‐Offer Markets," Southern Economic Journal, John Wiley & Sons, vol. 68(3), pages 672-682, January.
    3. Kai A. Konrad & Florian Morath & Wieland Müller, 2014. "Taxation and Market Power," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(1), pages 173-202, February.
    4. Rupert Sausgruber & Jean-Robert Tyran, 2005. "Testing the Mill hypothesis of fiscal illusion," Public Choice, Springer, vol. 122(1), pages 39-68, January.
    5. Tomer Blumkin & Ehud Menirav, 2009. "Framing the rabbit to snare the votes," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 32(4), pages 603-634, May.
    6. Arno Riedl, 2009. "Behavioral and Experimental Economics Can Inform Public Policy: Some Thoughts," CESifo Working Paper Series 2902, CESifo.
    7. Werner, Peter & Riedl, Arno, 2018. "The role of experiments for policy design," Research Memorandum 022, Maastricht University, Graduate School of Business and Economics (GSBE).
    8. Huang, Lingbo & Tiezzi, Silvia & Xiao, Erte, 2022. "Tax liability side equivalence and time delayed externalities," European Journal of Political Economy, Elsevier, vol. 72(C).
    9. Tai-Sen He, 2020. "The framing effect of tax–transfer systems," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 6(2), pages 213-225, December.

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