- The Non-Equivalence of Labour Market Taxes: A Real-Effort Experiment
- Economic Journal
- Volume | Issue number
- 127 | 604
- Pages (from-to)
- Document type
- Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
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.
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