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The efficiency impact of uncertain taxes: an experimental study

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  • Calvin Blackwell
  • Russell S. Sobel

Abstract

Uncertainty is generally assumed to have negative economic effects, but they are difficult to quantify due to measurement and definitional issues in the real world. We use a carefully controlled laboratory experiment to examine policy uncertainty and its impact on economic efficiency. We employ a double-auction design and compare the efficiency of a market with a known tax to that of a risky tax (of known probability) and an uncertain tax (of unknown probability). We find that the uncertain tax generates more deadweight loss than a risky tax of equal expected value.

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  • Calvin Blackwell & Russell S. Sobel, 2020. "The efficiency impact of uncertain taxes: an experimental study," Applied Economics Letters, Taylor & Francis Journals, vol. 27(10), pages 859-872, June.
    • Handle: RePEc:taf:apeclt:v:27:y:2020:i:10:p:859-872
    DOI: 10.1080/13504851.2019.1646854
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