An experimental examination of general equilibrium tax incidence

Tax incidence is examined in an experimental general equilibrium production micro economy. Consistent with predictions, the imposition of a tax on corporate capital resulted in a flow of capital out of the corporate sector, decreased corporate usage of capital relative to labor, and tax-shifting through decreases in the relative prices of capital and non-corporate output. Although capital owners were able to shift some of the tax burden, the corporate tax resulted in a 35% drop in capital owners' share of payoffs. Implications for policy are discussed.