Theoretically robust but empirically invalid? An experimental investigation into tax equivalence

The idea that the final distribution of the tax burden (economic incidence) does not depend on the initial distribution of tax liabilities (statutory incidence) is referred to as the Liability Side Equivalence principle. This paper tests this principle in the laboratory and finds that subjects who a ctually have to pay the tax carry a higher tax burden. It is argued that th is violation of Liability Side Equivalence is due to the fact that a change in the distribution of tax liabilities induces a shift in behaviorally rel evant social norms. This shift, in turn, affects the impact of the tax. Our results explain some striking empirical observations and have important th eoretical and practical implications.