Efficiency loss and support for income redistribution: Evidence from a laboratory experiment

Markus Tepe, Fabian Paetzel, Jan Lorenz and Maximilian Lutz
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Markus Tepe: University of Oldenburg, Germany
Fabian Paetzel: Helmut-Schmidt-University, Germany
Jan Lorenz: Jacobs University, Germany
Maximilian Lutz: University of Oldenburg, Germany

Rationality and Society, 2021, vol. 33, issue 3, 313-340

Abstract: Income redistribution with an efficiency loss is expected to have a twofold negative effect on support for redistribution, as it lowers egoistic support for redistribution and activates efficiency preferences. This study tests whether such a negative relationship exists, increases with the size of efficiency loss and interacts with group communication and the income position. We present a laboratory experiment in which subjects receive a randomly allocated income and must coordinate on a majority tax rate using a deliberative communication tool. The rate of money lost as a part of the redistribution process is manipulated as a treatment variable (0%, 5%, 20%, or 60%). Experimental evidence shows that efficiency loss exerts a robust negative effect on support for redistribution. The effect shows a tipping point pattern, is stronger at the lower end of the income distribution and is not fully explained by egoistic preferences. Inefficiency matters mostly for the chosen tax rate after group communication. At an efficiency loss of 60%, however, group communication does not affect support for redistribution, which implies that inefficiencies tend to play a minor role in the context of redistribution as long as they are within a moderate range. JEL Classification: C91, C92, D63, D72

Keywords: Efficiency preferences; group communication; inefficiency; leaky bucket; political attitudes; redistribution; taxation; voting (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:ratsoc:v:33:y:2021:i:3:p:313-340

DOI: 10.1177/10434631211015514

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