Taxpayer Responsiveness and Statutory Incidence: Evidence from Irish Social Security Notches

This paper provides evidence that the statutory incidence of a tax — the party which the law declares responsible for the tax’s payment — is a determinant of tax-payer behaviour. A unique feature of the Irish social... [ view full abstract ]

This paper provides evidence that the statutory incidence of a tax — the party which the law declares responsible for the tax’s payment — is a determinant of tax-payer behaviour. A unique feature of the Irish social security tax is that statute defines whether tax increases “should” be paid by the employer or the employee. Using administrative data, we exploit changes in these provisions to analyze whether behaviour depends on statutory incidence. We find it does: earnings responses are much stronger when statutory incidence falls on the employee. By decomposing earnings responses by employer and employee characteristics, we investigate potential channels to explain the differential levels of avoidance. The results are inconsistent with the tax-collection invariance result from standard economic models.