Experimental Evidence of Market Reactions to New Consumption Taxes

Abstract. Consumption taxes of various forms are of increasing importance worldwide. This study employs a laboratory market design to investigate differential market reactions to three consumption tax forms while holding all other factors constant. Ten laboratory markets were conducted, each involving nine volunteer participants. Market participants were randomly assigned to roles analogous to wholesalers, retailers, or consumers of a market good. The three tax forms were (1) a sales tax imposed on retail consumers of a commodity, (2) a grossâ€ receipts tax imposed on retail sellers, and (3) a valueâ€ added tax imposed on sellers at two levels of production. At least three markets were conducted under each tax regime as a basis for experimental comparison. The tax rates used in each structure were chosen so that a competitive model would predict different equilibrium prices but the same tax burdens (the sum of explicit and implicit taxes) across the three tax regimes. Results generally support these predictions, with somewhat stronger support for equivalent tax revenues (explicit taxes collected) than for equivalent tax incidence (distribution of tax burdens after price adjustments). Observed tax incidence differences suggest that market agents who are called upon to explicitly pay taxes actually bear relatively lower tax burdens after implicit tax price adjustments. In general, however, price shifting is consistent with the competitive model, supporting the economic dictum that the choice among alternative designations of taxpaying agents is more a question of form than of economic substance. RA©sumA©. Les taxes A la consommation revAatant diverses formes augmentent en importance A travers le monde. Les auteurs ont conA§u un modA¨le de marchA© expA©rimental dans le but d'A©tudier les diffA©rentes rA©actions du marchA© A trois formes de taxe A la consommation, tout en maintenant constants l'ensemble des autres facteurs. Dix marchA©s expA©rimentaux ont A©tA© crA©A©s, chacun d'eux faisant intervenir neuf participants volontaires A qui A©taient attribuA©s alA©atoirement des rA´les analogues A ceux de grossistes, de dA©taillants ou de consommateurs d'un marchA© de produits. Les trois formes de taxe A©taient les suivantes: (1) une taxe de vente s'appliquant aux consommateurs d'un bien sur le marchA© de dA©tail, (2) une taxe sur les encaissements bruts s'appliquant aux dA©taillants et (3) une taxe sur la valeur ajoutA©e s'appliquant aux vendeurs, A deux A©chelons de production. Au moins trois marchA©s sous chaque rA©gime fiscal ont servi de base de comparaison expA©rimentale. Les taux utilisA©s dans chaque structure ont A©tA© choisis de telle sorte qu'un modA¨le concurrentiel arrive A des prix d'A©quilibre diffA©rents mais A une fardeau fiscal identique (la somme des taxes explicites et implicites) sous les trois rA©gimes. Dans l'ensemble, les rA©sultats obtenus confirment ces prA©dictions, plus encore dans le cas des recettes fiscales A©quivalentes. Les diffA©rentes incidences fiscales observA©es donnent A penser que les agents du marchA© de qui l'on rA©clame explicitement des taxes supportent, en rA©alitA©, un fardeau fiscal relativement moins A©levA©, une fois opA©rA©s les ajustements de prix relatifs aux taxes implicites. De maniA¨re gA©nA©rale, cependant, les variations de prix sont conformes au modA¨le concurrentiel, ce qui corrobore cet axiome A©conomique selon lequel le choix des agents A qui doit Aatre attribuA© le rA´le de contribuable est davantage une question de forme que de substance A©conomique.