The Social Tax: Redistributive Pressure and Labor Supply

Eliana Carranza, Aletheia Donald, Florian Grosset-Touba () and Supreet Kaur
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Florian Grosset-Touba: CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - GENES - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - GENES - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique, ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - GENES - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris, IP Paris - Institut Polytechnique de Paris
Supreet Kaur: Department of Economics [Berkeley] - UC Berkeley - University of California [Berkeley] - UC - University of California, NBER - The National Bureau of Economic Research

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Abstract: In low-income communities in both rich and poor countries, redistributive transfers within kin and social networks are frequent. Such arrangements may distort labor supply-acting as a "social tax" that dampens the incentive to work. We document that across countries, from the United States to Côte d'Ivoire, low-income groups report strong pressure to share earned income with others; in addition, social groups that undertake more interpersonal transfers work fewer hours. Using a field experiment, we enable piece-rate factory workers in Côte d'Ivoire to shield income using blocked savings accounts over 9 months. Workers may only deposit earnings increases, relative to baseline, mitigating income effects on labor supply. Offering Private accounts raises work attendance by 6.5% and earnings by 9.4%. These treatment effects are concentrated among workers who report higher redistributive pressure at baseline. To obtain further suggestive evidence on mechanisms, in a supplementary experiment, we vary whether blocked accounts are private or known to the worker's network. When accounts are private, take-up is substantively higher (60% vs. 14%), with a resultant 8.8% higher earnings. Outgoing transfers do not decline, indicating no loss in redistribution. The welfare benefits of informal redistribution may come at a cost, depressing labor supply and productivity.

Keywords: Informal insurance; kin tax; social norms (search for similar items in EconPapers)
Date: 2025
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Published in Econometrica, 2025, 93 (6), pp.2273-2308. ⟨10.3982/ECTA21078⟩

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Related works:
Journal Article: The Social Tax: Redistributive Pressure and Labor Supply (2025)
Working Paper: The Social Tax: Redistributive Pressure and Labor Supply (2022)
Working Paper: The Social Tax: Redistributive Pressure and Labor Supply (2022)
Working Paper: The Social Tax: Redistributive Pressure and Labor Supply (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05373226

DOI: 10.3982/ECTA21078

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