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Tax Liability Side Equivalence in Gift-Exchange Labor Markets

Author

Listed:
  • 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.

Suggested Citation

  • Jean-Robert Tyran & Arno Riedl, 2003. "Tax Liability Side Equivalence in Gift-Exchange Labor Markets," University of St. Gallen Department of Economics working paper series 2003 2003-15, Department of Economics, University of St. Gallen.
    • Handle: RePEc:usg:dp2003:2003-15
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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. Arno Riedl, 2009. "Behavioral and Experimental Economics Can Inform Public Policy: Some Thoughts," CESifo Working Paper Series 2902, CESifo.
    3. Huck, Steffen & Lünser, Gabriele & Spitzer, Florian & Tyran, Jean-Robert, 2016. "Medical insurance and free choice of physician shape patient overtreatment: A laboratory experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 131(PB), pages 78-105.
    4. Blumkin, Tomer & Pinhas, Haim & Zultan, Ro’i, 2020. "Wage Subsidies and Fair Wages," European Economic Review, Elsevier, vol. 127(C).
    5. 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.
    6. Doerrenberg, Philipp & Duncan, Denvil, 2014. "Tax Incidence in the Presence of Tax Evasion," IZA Discussion Papers 8137, Institute of Labor Economics (IZA).
    7. 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.
    8. Andrea Morone & Francesco Nemore & Simone Nuzzo, 2018. "Experimental evidence on tax salience and tax incidence," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 20(4), pages 582-612, August.
    9. Steffen Huck & Gabriele K. Lünser & Jean-Robert Tyran, 2016. "Price competition and reputation in markets for experience goods: an experimental study," RAND Journal of Economics, RAND Corporation, vol. 47(1), pages 99-117, February.
    10. 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.
    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. repec:iab:iabjlr:v:55:i::p:art.5 is not listed on IDEAS
    13. Rupert Sausgruber & Jean-Robert Tyran, 2005. "Testing the Mill hypothesis of fiscal illusion," Public Choice, Springer, vol. 122(1), pages 39-68, January.
    14. Huang, Lingbo & Tiezzi, Silvia & Xiao, Erte, 2022. "Tax liability side equivalence and time delayed externalities," European Journal of Political Economy, Elsevier, vol. 72(C).
    15. Paul J. Healy, 2007. "Group Reputations, Stereotypes, and Cooperation in a Repeated Labor Market," American Economic Review, American Economic Association, vol. 97(5), pages 1751-1773, December.
    16. 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.
    17. 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.
    18. Werner, Peter & Riedl, Arno, 2018. "The role of experiments for policy design," Research Memorandum 022, Maastricht University, Graduate School of Business and Economics (GSBE).
    19. Bracht, Juergen & Feltovich, Nick, 2009. "Whatever you say, your reputation precedes you: Observation and cheap talk in the trust game," Journal of Public Economics, Elsevier, vol. 93(9-10), pages 1036-1044, October.
    20. Ben Heijdra & Jenny Ligthart, 2009. "Labor tax reform, unemployment, and search," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(1), pages 82-104, February.
    21. Christian Koch, 2021. "Can reference points explain wage rigidity? Experimental evidence," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 55(1), pages 1-17, December.
    22. Koch, Christian, 2021. "Can reference points explain wage rigidity? : Experimental evidence," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 55, pages 1-5.
    23. Sausgruber, Rupert & Tyran, Jean-Robert, 2011. "Are we taxing ourselves?," Journal of Public Economics, Elsevier, vol. 95(1), pages 164-176.
    24. 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.
    25. Koch, Christian, 2021. "Can reference points explain wage rigidity? : Experimental evidence," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 55(55), pages 1-.5.

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    More about this item

    Keywords

    Tax incidence; Efficiency wages; Gift exchange; Experiments;
    All these keywords.

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts

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