Tax Liability-Side Equivalence in Experimental Posted-Offer Markets

Abstract

In theory, the incidence of a tax should be independent of the side of the market on which it is levied. This principle of liability-side equivalence underlies virtually all theories of tax incidence. Policy discussions, however, tend to place great emphasis on the legal division of tax payments. We use computerized experimental posted-offer markets to test liability-side equivalence. We find that market outcomes are essentially the same when the tax is levied on sellers as when it is levied on buyers. Thus, we cannot reject liability-side equivalence.