Tax Liability Side Equivalence in Gift-Exchange Labor Markets

Tinbergen Institute Working Paper No. 03-065/1

35 Pages Posted: 8 Oct 2003

See all articles by Arno Riedl

Arno Riedl

Maastricht University; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Netspar

Jean-Robert Tyran

University of Vienna; University of Copenhagen - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: August 2003

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 gift-exchange market and find that it holds surprisingly well.

Keywords: Tax incidence, Efficiency wages, Gift exchange, Experiments

JEL Classification: C92, H22, J41

Suggested Citation

Riedl, Arno M. and Tyran, Jean-Robert, Tax Liability Side Equivalence in Gift-Exchange Labor Markets (August 2003). Tinbergen Institute Working Paper No. 03-065/1, Available at SSRN: https://ssrn.com/abstract=437060 or http://dx.doi.org/10.2139/ssrn.437060

Arno M. Riedl (Contact Author)

Maastricht University ( email )

Department of Microeconomics & Public Economics
P.O. Box 616
Maastricht, 6200 MD
Netherlands

HOME PAGE: http://www.arnoriedl.com

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Jean-Robert Tyran

University of Vienna ( email )

Oskar-Morgenstern-Platz 1
Vienna, Vienna 1090
Austria

HOME PAGE: http://homepage.univie.ac.at/jean-robert.tyran/

University of Copenhagen - Department of Economics ( email )

Ă˜ster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark
+45 353 23 027 (Phone)

HOME PAGE: http://www.econ.ku.dk/tyran/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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