The Non‐Equivalence of Labour Market Taxes: A Real‐Effort Experiment

29 Pages Posted: 6 Sep 2017

See all articles by Matthias Weber

Matthias Weber

University of St. Gallen - School of Finance

Arthur J. H. C. Schram

University of Amsterdam - Faculty of Economics and Business (FEB); Tinbergen Institute

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Date Written: September 2017

Abstract

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, labour 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 labour supply is lower, at least at the extensive margin. We discuss three mechanisms that may underlie these results.

Suggested Citation

Weber, Matthias and Schram, Arthur J. H. C., The Non‐Equivalence of Labour Market Taxes: A Real‐Effort Experiment (September 2017). The Economic Journal, Vol. 127, Issue 604, pp. 2187-2215, 2017. Available at SSRN: https://ssrn.com/abstract=3031010 or http://dx.doi.org/10.1111/ecoj.12365

Matthias Weber (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Arthur J. H. C. Schram

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 18
CREED
Amsterdam 1018 WB
Netherlands
+31 (0)20 525 4293 (Phone)

HOME PAGE: http://www.fee.uva.nl/creed/PEOPLE/Arthurs.htm

Tinbergen Institute ( email )

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Rotterdam, 3062 PA
Netherlands

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