Progressive Taxation in a Tournament Economy

33 Pages Posted: 16 Aug 2014

See all articles by Jeffrey P. Carpenter

Jeffrey P. Carpenter

Middlebury College - Department of Economics; IZA Institute of Labor Economics

Peter Hans Matthews

Middlebury College - Department of Economics

Benjamin Tabb

Middlebury College

Abstract

Not enough is known about the responsiveness of individuals, in particular those who tend to work under different incentives, to changes in marginal tax rates. We ask whether changes in marginal tax rates are less distortionary for workers engaged in a contest. To examine this potential rationale for a more progressive tax code, we first model the effort decisions of workers faced with progressive taxation under tournaments and piece rates. Because of the difficulty identifying any distortion that may be induced by the tax code in naturally occurring data, we then report on the results of a real-effort experiment based on this model. Consistent with a behavioral approach to public finance, we find that tournament workers are less sensitive, and conclude with a tentative evaluation of the welfare benefits of progressive taxation in tournament economies.

Keywords: taxation, tournaments, public good, real effort experiment

JEL Classification: H20, H41, J22, J33, C91

Suggested Citation

Carpenter, Jeffrey P. and Matthews, Peter Hans and Tabb, Benjamin, Progressive Taxation in a Tournament Economy. IZA Discussion Paper No. 8369. Available at SSRN: https://ssrn.com/abstract=2481558

Jeffrey P. Carpenter (Contact Author)

Middlebury College - Department of Economics ( email )

Munroe Hall
Middlebury, VT 05753
United States
802-443-3241 (Phone)
802-443-2084 (Fax)

HOME PAGE: http://community.middlebury.edu/~jcarpent/index.ht

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Peter Hans Matthews

Middlebury College - Department of Economics ( email )

Munroe Hall
Middlebury, VT 05753
United States
802 443-5591 (Phone)
802 443-2084 (Fax)

Benjamin Tabb

Middlebury College

Middlebury, VT 05753
United States

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