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

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.

Disincentives from Redistribution: Evidence on a Dividend of Democracy

“…and Sliwka 2013; Mohnen, Pokorny, and Sliwka 2008;Weber and Schram 2017;Goerg, Kube, and Radbruch 2017). 5 However, we are, to the best of our knowledge, the first to use a task with induced monetary opportunity cost of work to measure disincentives of taxation and redistribution (see also our companion paper on work motivation in teams: Haeckl, Sausgruber, and Tyran 2018).…”

Behavioral Optimal Taxation: The Case of Aspirations

“…In the experiments I conducted (Weber and Schram, 2017;Weber, 2017;Hommes et al, 2017;Weber et al, 2018;Kopányi-Peuker and Weber, 2018), the results always differ decisively from full rationality (the only experiment that also finds some support for rational behavior is the bond pricing experiment, Weber et al, 2018, where first-round prices are far from the equilibrium, but aggregate outcomes in the last round of the experiment are surprisingly close to the rational equilibrium).…”

“…However, evidence that human behavior systematically deviates from rational choice is abundant. There are now a considerable number of papers documenting non-rational behavior relevant for taxation (e.g., Kerschbamer and Kirchsteiger, 2000;Sausgruber and Tyran, 2005;Chetty et al, 2009;Sausgruber and Tyran, 2011;Fochmann et al, 2012;Blumkin et al, 2012;Carpenter et al, 2016;Weber and Schram, 2017). The abundance of evidence of nonrational behavior has lead scholars to call for or engage in the development of behavioral models for welfare evaluations (Bernheim and Rangel, 2005;McCaffery and Baron, 2006;Kőszegi and Rabin, 2008;Riedl, 2010;Mullainathan et al, 2011;Chetty, 2015).…”

Anticipating Peer Ranking Causes Hormonal Adaptations that Benefit Cognitive Performance

“…Amsterdam. An earlier study on performance ranking and cognitive performance, using the same experimental set-up as used here, used sample sizes of 18 per treatment (Weber & Schram, 2016). Using the results from that study we expected a medium effect size between d = 0.5 (conservative) and d = 0.8 (liberal) for the comparison between NR-T and PR-T. G-Power 3.1 (Faul et al, 2007, with α = 0.05 and 1 -β = 0.80, yielded a required sample size of 53 and 21 for each treatment, with an average of N = 37.…”