Disincentives from Redistribution: Evidence on a Dividend of Democracy

Sausgruber, Rupert; Sonntag, Axel; Tyran, Jean‐Robert

doi:10.2139/ssrn.3475358

Cited by 5 publications

(8 citation statements)

References 40 publications

(41 reference statements)

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“…Although we include the possibility of leisure in our experimental design, the time spent on leisure is rather small and this may underestimate the effect of tax rate on productivity. A possible solution may be to pay for the leisure time spent, as per Sausgruber et al (2019). However, in line with our results, empirical evidence supports the limited effect of taxes on top earners' productivity.…”

Section: Discussionsupporting

confidence: 85%

“…Nevertheless, Agranov and Palfrey's experimental setting is more exhaustive, since subjects could vote for any tax rate, whereas in our case we just consider two fixed tax-rate options. Finally, Sausgruber et al (2019) analyze the differences between the disincentive effect of taxing work and redistributing tax revenues when redistribution is imposed and when it is chosen by voting. This work is the closest to ours in experimental design, since they also use a real-effort task with the option of leisure time.…”

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confidence: 99%

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Why Do the Poor Vote for Low Tax Rates? A (Real-Effort Task) Experiment on Income Redistribution.

Jiménez¹,

Molis²,

Solano-García

2019

SSRN Journal

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The main purpose of this paper is to shed some light on the voting behavior of low-income voters over income redistribution. To this end, we test a model based on Meltzer and Richard's (1981) framework through a lab experiment in which individuals vote over two exogenous tax rates and their pre-tax income is determined according to their performance in a real-effort task. We classify individuals into highskilled and low-skilled participants according to their performance in a tournament at the beginning of the experiment. We find that a large proportion of low-skilled workers vote for the lowest tax rate (the one that gives them the lowest payoff), especially when the alternative tax rate is very high. However, this proportion is significantly reduced in treatments in which the subjects are given extra information about how the tax operates in redistributing income. This result suggests that the lack of information about the role of taxes in income redistribution may be an important factor in explaining the counter-intuitive voting behavior of low-income voters over income redistribution. We also find that both the prospect of upward mobility and the belief in the negative effect of taxes on productivity make low-income voters support low tax rates, especially when the alternative tax rate is very high.

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Section: Discussionsupporting

confidence: 85%

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confidence: 99%

Why Do the Poor Vote for Low Tax Rates? A (Real-Effort Task) Experiment on Income Redistribution.

Jiménez¹,

Molis²,

Solano-García

2019

SSRN Journal

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“…To give the test of our hypothesis that income redistribution increases efficiency by promoting economic inclusion the best shot, we deliberately abstained from implementing efficiency-reducing effects of redistribution such as administrative costs or disincentive effects (e.g., Sausgruber, Sonntag, and Tyran 2019). Disincentive effects occur if people are discouraged to work because their effort is taxed.…”

Section: Discussionmentioning

confidence: 99%

“…Andreoni and Miller 2002;Hedegaard et al 2019;Tyran and Sausgruber 2006). More generally, support for redistribution tends to decrease if there is a trade-off between efficiency and equality, e.g., due to administrative costs of redistribution (e.g., Engelmann and Strobel 2004;Durante, Putterman, and van der Weele 2014) or reducing incentives to work and make an effort (Sausgruber, Sonntag, and Tyran 2019;Sutter and Weck-Hannemann 2003). We chose an experimental design in which subjects face no such trade-offs: to preclude potential disincentive effects, redistribution comes at no administrative cost and subjects choose between two investment options rather than engaging in a real-effort task.…”

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confidence: 99%

Equal opportunities for all? How income redistribution promotes support for economic inclusion

Reindl

Tyran

2021

Journal of Economic Behavior & Organization

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We experimentally investigate how income redistribution shapes support for economic inclusion, i.e., a policy that creates equality of opportunity for income generation. We study a setting in which lowendowment subjects are excluded from investment opportunities unless those with high endowments transfer resources to the low-endowment subjects. We find that support for economic inclusion is stronger among high-endowment subjects if incomes are known to be redistributed in the future compared to a situation in which this is precluded by design. Income redistribution spreads both risks and returns of investments in the population which, in turn, induces a higher rate of profitable investments, and this prospect tends to foster support for economic inclusion. Income redistribution thus induces more equal and efficient outcomes by boosting popular support for economic inclusion.

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“…Positive impacts of a democratic decision process on cooperation itself are suggested by experiments including Tyran and Feld (2006), Dal Bó, Foster and Putterman (2010), Sutter et al (2010), , Sausgruber et al (2019), and Kamei (2016Kamei ( , 2019.…”

Section: Related Literaturementioning

confidence: 99%

Civic Engagement as a Second-Order Public Good: The Cooperative Underpinnings of the Accountable State

2019

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Effective states provide public goods by taxing their citizens and imposing penalties for non-compliance. However, accountable government requires that enough citizens are civically engaged. We study the voluntary cooperative underpinnings of the accountable state by conducting a two-level public goods experiment in which civic engagement can build a sanction scheme to solve the first-order public goods dilemma. We find that civic engagement can be sustained at high levels when costs are low relative to the benefits of public good provision. This cost-to-benefit differential yields what we call a "leverage effect" because it transforms modest willingness to cooperate into the larger social dividend from the power of taxation. In addition, we find that local social interaction among subgroups of participants also boosts cooperation.

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Disincentives from Redistribution: Evidence on a Dividend of Democracy

Cited by 5 publications

References 40 publications

Why Do the Poor Vote for Low Tax Rates? A (Real-Effort Task) Experiment on Income Redistribution.

Why Do the Poor Vote for Low Tax Rates? A (Real-Effort Task) Experiment on Income Redistribution.

Equal opportunities for all? How income redistribution promotes support for economic inclusion

Civic Engagement as a Second-Order Public Good: The Cooperative Underpinnings of the Accountable State

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