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Redistribution and Production with a Subsistence Income Constraint: A Real-effort Experiment

Author

Listed:
  • Marina Chugunova
  • Andreas Nicklisch
  • Kai-Uwe Schnapp

Abstract

A large body of experimental studies demonstrates that redistribution leads to inefficiencies due to distorted work incentives. Yet, this finding is typically obtained in environments where people are unconstrained in their labor-leisure allocation decisions. In this paper we study labor supply decisions in a framework with a subsistence income constraint and a redistribution system that supports disadvantaged members of a society in meeting the constraint. We document that while high-talent taxpayers perform equally well in all conditions, the less talented ones significantly decrease their performance in response to the introduction of the tax. The negative effect of taxation is mitigated if an income threshold is present and the tax is spent meaningfully.

Suggested Citation

  • Marina Chugunova & Andreas Nicklisch & Kai-Uwe Schnapp, 2022. "Redistribution and Production with a Subsistence Income Constraint: A Real-effort Experiment," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 78(1-2), pages 208-238.
    • Handle: RePEc:mhr:finarc:urn:doi:10.1628/fa-2021-0017
    DOI: 10.1628/fa-2021-0017
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    More about this item

    Keywords

    redistribution; subsistence income; implicit costs of taxation; needy players; meaningfulness of taxation;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies

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