The non-equivalence of labour market taxes : a real-effort experiment
Title: The non-equivalence of labour market taxes : a real-effort experiment
Citation: The economic journal, 2017, Vol. 127, No. 604, pp. 2187–2215
ISSN: 1468-0297; 0013-0133
Under full rationality, a labour market tax levied on employers and a corresponding income tax levied on employees are equivalent. With boundedly rational agents, this equivalence is no longer obvious. In a real-effort experiment, we study the effects of these taxes on preferences concerning the size of the public sector, subjective well-being, labor supply, and on-the-job performance. Our findings suggest that employer-side taxes induce preferences for a larger public sector. Subjective well-being is higher under employer-side taxes while labor supply is lower, at least at the extensive margin. We discuss three mechanisms that may underlie these results.
First published: 5 April 2017
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