Income Tax or Employer's Contribution – an Experiment on the Perception of 'Economically Equivalent' Duties

Tinbergen Institute MPhil Thesis

44 Pages Posted: 16 May 2018

See all articles by Matthias Weber

Matthias Weber

University of St. Gallen - School of Finance

Date Written: July 22, 2011

Abstract

Under full rationality a labor income tax and a corresponding employer’s contribution are equivalent. Without full rationality this equivalence is no longer obvious. If people react differently to these duties this has direct impact on policy making and also has consequences for optimal taxation theory and political economics. This paper examines how people react to these duties in a laboratory experiment. This is primarily done with respect to labor supply decisions and with respect to the value individuals attribute to working under distinct tax regimes. We find that these duties are not equivalent. The differences between the regimes are especially pronounced with respect to the value attributed to having a job. Subjects are will- ing to bear higher costs to be able to work facing an income tax than facing an employer’s contribution even when the two are economically equivalent.

Suggested Citation

Weber, Matthias, Income Tax or Employer's Contribution – an Experiment on the Perception of 'Economically Equivalent' Duties (July 22, 2011). Tinbergen Institute MPhil Thesis. Available at SSRN: https://ssrn.com/abstract=3170998 or http://dx.doi.org/10.2139/ssrn.3170998

Matthias Weber (Contact Author)

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

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

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