TY  - RPRT
        AU  - Riedl, Arno
AU  - Winden, Frans van
        TI  - Input versus Output Taxation in an Experimental International Economy
        PY  - 2004/Oct/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 1344
        UR  - https://www.iza.org/index.php/publications/dp1344
        AB  - This paper is concerned with a policy oriented macroeconomic experiment involving an
'international' economy with a relatively small 'home' country and a large 'foreign' country. It
compares the economic performance of two alternative tax systems as a means to finance
unemployment benefits: a sales-tax-cum-labor-subsidy system versus a wage tax system.
The two systems are applied to the home country, while the wage tax system always obtains
in the foreign country. In stark contrast with expectations of experts the sales tax system
clearly outperforms the wage tax system, using standard economic indicators. It is argued
that producers' reluctance to incur costs up-front while being uncertain about product prices
can explain this outcome. Several pieces of evidence are provided to support this claim. The
results strongly suggest that behavioral aspects have to be taken into account also in applied
macroeconomic models.
        KW  - macroeconomic policy
KW  - sales tax
KW  - wage tax
KW  - laboratory experiment
KW  - behavioral economics
        ER  -