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Theoretically robust but empirically invalid: an experimental investigation into tax equivalence


  • Georg Kirchsteiger
  • Rudolf Kerschbamer


The idea that the final distribution of the tax burden (economic incidence) does not depend on the initial distribution of tax liabilities (statutory incidence) is referred to as the Liability Side Equivalence principle. This paper tests this principle in the laboratory and finds that subjects who actually have to pay the tax carry a higher tax burden. It is argued that this violation of Liability Side Equivalence is due to the fact that a change in the distribution of tax liabilities induces a shift in behaviorally relevant social norms. This shift, in turn, affects the impact of the tax. Our results explain some striking empirical observations and have important theoretical and practical implications.
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Suggested Citation

  • Georg Kirchsteiger & Rudolf Kerschbamer, 2000. "Theoretically robust but empirically invalid: an experimental investigation into tax equivalence," ULB Institutional Repository 2013/5903, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:ulb:ulbeco:2013/5903

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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. Morone, Andrea & Nemore, Francesco, 2015. "Tax salience: an experimental investigation," MPRA Paper 63814, University Library of Munich, Germany.
    3. Ruffle, Bradley J., 2005. "Tax and subsidy incidence equivalence theories: experimental evidence from competitive markets," Journal of Public Economics, Elsevier, vol. 89(8), pages 1519-1542, August.
    4. Raj Chetty & Adam Looney & Kory Kroft, 2009. "Salience and Taxation: Theory and Evidence," American Economic Review, American Economic Association, vol. 99(4), pages 1145-1177, September.
    5. Doerrenberg, Philipp & Duncan, Denvil, 2014. "Tax Incidence in the Presence of Tax Evasion," IZA Discussion Papers 8137, Institute for the Study of Labor (IZA).
    6. Blumkin, Tomer & Ruffle, Bradley J. & Ganun, Yosef, 2012. "Are income and consumption taxes ever really equivalent? Evidence from a real-effort experiment with real goods," European Economic Review, Elsevier, vol. 56(6), pages 1200-1219.
    7. Morone, Andrea & Nemore, Francesco & Nuzzo, Simone, 2016. "Experimental Evidence on Tax Salience and Tax Incidence," MPRA Paper 74319, University Library of Munich, Germany.
    8. Kai A. Konrad & Florian Morath & Wieland Müller, 2014. "Taxation and Market Power," Canadian Journal of Economics, Canadian Economics Association, vol. 47(1), pages 173-202, February.
    9. 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.
    10. Riedl, Arno & Tyran, Jean-Robert, 2005. "Tax liability side equivalence in gift-exchange labor markets," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2369-2382, December.
    11. James Alm & Carolyn J. Bourdeaux, 2013. "Applying Behavioral Economics to the Public Sector," Hacienda Pública Española, IEF, vol. 206(3), pages 91-134, September.
    12. repec:wly:econjl:v:127:y:2017:i:604:p:2187-2215 is not listed on IDEAS
    13. Raj Chetty, 2009. "The Simple Economics of Salience and Taxation," NBER Working Papers 15246, National Bureau of Economic Research, Inc.
    14. Arno Riedl, 2009. "Behavioral and Experimental Economics Can Inform Public Policy: Some Thoughts," CESifo Working Paper Series 2902, CESifo Group Munich.
    15. Alm, James & Jacobson, Sarah, 2007. "Using Laboratory Experimentsin Public Economics," National Tax Journal, National Tax Association, vol. 60(1), pages 129-152, March.
    16. Avram, Silvia, 2015. "Benefit Losses Loom Larger than Taxes: The Effects of Framing and Loss Aversion on Behavioural Responses to Taxes and Benefits," ISER Working Paper Series 2015-17, Institute for Social and Economic Research.
    17. Hirofumi Kurokawa & Tomoharu Mori & Fumio Ohtake, 2016. "A Choice Experiment on Taxes: Are Income and Consumption Taxes Equivalent?," ISER Discussion Paper 0966, Institute of Social and Economic Research, Osaka University.
    18. Sausgruber, Rupert & Tyran, Jean-Robert, 2011. "Are we taxing ourselves?," Journal of Public Economics, Elsevier, vol. 95(1), pages 164-176.
    19. Tomer Blumkin & Haim Pinhas & Ro'i Zultan, 2017. "Leveraging Wage Subsidies to Facilitate Fair Wages and Increase Social Welfare," CESifo Working Paper Series 6597, CESifo Group Munich.
    20. Matthias Weber & Arthur Schram, 2017. "The Non‐equivalence of Labour Market Taxes: A Real‐effort Experiment," Economic Journal, Royal Economic Society, vol. 127(604), pages 2187-2215, September.
    21. Michael Neumann, 2015. "Earnings Responses to Social Security Contributions," Discussion Papers of DIW Berlin 1489, DIW Berlin, German Institute for Economic Research.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior


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