Tax and Subsidy Incidence Equivalence Theories: Experimental Evidence from Competitive Markets

A basic tenet in elementary microeconomics is tax incidence equivalence. This tenet holds that the burden of a unit tax on buyers and sellers is independent of who actually pays the tax. By contrast, policymakers and the public often mistake statutory incidence for economic incidence. Recent evidence of the empirical validity of tax incidence equivalence is mixed. In this paper, using competitive laboratory markets, I test both tax incidence …