EconPapers    
Economics at your fingertips  
 

A Behavioral Laffer Curve: Emergence of a Social Norm of Fairness in a Real Effort Experiment

Louis Lévy-Garboua, David Masclet () and Claude Montmarquette

Working Papers from HAL

Abstract: This paper demonstrates, through a controlled experiment, that the "Laffer curve" phenomenon does not always reflect a conventional income - leisure trade-off. Whether out of reason or out of emotion, taxpayers may also be willing to punish intentionally unfair tax setters by working less than they would under the same exogenous circumstances. We conduct a real effort experiment in which a player A (the "tax receiver") is matched with a player B (the "worker") to elicit the conditions under which tax revenues will increase under a certain threshold and decrease thereafter. We ran four different treatments by manipulating work opportunities and the power to tax. Consistent with the history of tax revolts, the working partner overreacts to the perceived unfairness of taxation when the tax rate exceeds 50%, most strongly so in the high effort treatment. With two types of players, selfish and empathic, our model predicts the emergence of a social norm of fairness under asymmetric information, and elicits the optimal and emotional patterns of punishments and rewards consistent with the norm's enforcement. The social norm allows players to coordinate tacitly on a "focal equilibrium", which offers a solution to the indeterminacy raised by the Folk theorem for infinitely-repeated games and a behavioral justification for the tit-for-tat strategy. The social norm of fairness enhances productive efficiency in the long run.

Keywords: social norms and sanctions; fairness and efficiency; experimental economics; emotions; Taxation and labor supply; Laffer curve; informational asymmetry; emotions. (search for similar items in EconPapers)
Date: 2008-11-20
Note: View the original document on HAL open archive server: https://hal.science/halshs-00350260v2
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://hal.science/halshs-00350260v2/document (application/pdf)

Related works:
Journal Article: A behavioral Laffer curve: Emergence of a social norm of fairness in a real effort experiment (2009) Downloads
Working Paper: A Behavioral Laffer Curve: Emergence of a Social Norm of Fairness in a Real Effort Experiment (2008) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:halshs-00350260

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2025-03-19
Handle: RePEc:hal:wpaper:halshs-00350260