Government Aversion and Revealed Preference for Redistribution

Matthias Rodemeier and Gregory Sun

No 12645, CESifo Working Paper Series from CESifo

Abstract: We study how Americans trade off the welfare of the poor versus the rich using incentivized transfer experiments with over 10,000 participants. Combining revealed preferences with around 1,200 estimates of the Elasticity of Taxable Income, we quantify optimal tax schedules across the income distribution. Revealed equity preferences imply tax rates far more progressive than the tax schedules people endorse politically in direct elicitations. We trace this gap between intrinsic equity preferences and demand for redistribution to an explicit aversion toward the government. Subjects are willing to reduce real transfers to low-income families if this means keeping additional revenue away from the US Treasury - revealing a negative value of public funds. Accounting for this aversion toward the government sharply reduces optimal income taxes and yields a tax schedule that is close to tax rates subjects endorse politically. Our paper illustrates that people have strong preferences for helping the poor but that the binding constraint on redistribution is an aversion toward the implementing institution. We further offer a methodology to incorporate such institutional constraints in empirical public finance.

Keywords: income taxation; redistributive preferences; social welfare weights; government aversion; political economy (search for similar items in EconPapers)
JEL-codes: D63 D72 D90 H21 H30 P35 (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-pbe, nep-pol and nep-pub
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