Efficiency Loss and Preferences for Moderate Redistribution - Some Experimental Evidence -

35 Pages Posted: 30 Aug 2017 Last revised: 30 Dec 2019

See all articles by Markus S. Tepe

Markus S. Tepe

University of Oldenburg

Jan Lorenz

Jacobs University Bremen

Maximilian Lutz

University of Oldenburg

Fabian Paetzel

University of the German Federal Armed Forces - Helmut Schmidt Universität; DFG Research Group 2104

Date Written: December 30, 2019

Abstract

Income redistribution with an efficiency loss is expected to have a twofold negative effect on voters' support for redistribution, as it lowers aggregate egoistic support for redistribution and activates voters' efficiency preferences. The paper is dedicated to test whether such a negative relationship (i) exists, (ii) increases with the size of the efficiency loss and (iii) interacts with the individual income position. We present a laboratory experiment in which subjects receive a randomly allocated income and then must communicate using a novel communication tool, which keeps track of the iterative communication process until the group reaches a common tax rate. The rate of money "lost" as a part of the redistribution process is manipulated as a treatment variable (efficiency losses: 0%, 5%, 20% and 60%). Experimental evidence shows that efficiency loss exerts a robust negative effect on individual and collective support for redistribution. The effect shows a tipping point pattern, outlives group communication, is stronger at the lower end of the income distribution and is not fully explained by egoistic preferences. The average level of individually preferred and collectively agreed redistribution in societies for each efficiency loss is "moderate" (65% - 40%) which means that inefficiencies are less important in the context of redistribution.

Keywords: redistribution, inefficiency, voting, leaky bucket, efficiency preferences, political attitudes, taxation

JEL Classification: C91, C92, D63, D72

Suggested Citation

Tepe, Markus S. and Lorenz, Jan and Lutz, Maximilian and Paetzel, Fabian, Efficiency Loss and Preferences for Moderate Redistribution - Some Experimental Evidence - (December 30, 2019). Available at SSRN: https://ssrn.com/abstract=3027867 or http://dx.doi.org/10.2139/ssrn.3027867

Markus S. Tepe

University of Oldenburg ( email )

Ammerländer Heerstraße 114-118
Oldenburg, D-26111
Germany

HOME PAGE: http://www.tepems.de

Jan Lorenz

Jacobs University Bremen ( email )

Campus Ring 1
Bremen, 28759
Germany

Maximilian Lutz

University of Oldenburg ( email )

Ammerländer Heerstraße 114-118
Oldenburg, D-26111
Germany

Fabian Paetzel (Contact Author)

University of the German Federal Armed Forces - Helmut Schmidt Universität ( email )

Holstenhofweg 85
Hamburg, 22008
Germany

DFG Research Group 2104 ( email )

Holstenhofweg 85
Hamburg, DE 22043
Germany

HOME PAGE: http://bedarfsgerechtigkeit.hsu-hh.de/en?set_language=en

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