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Preferences For Redistribution and Perception of Fairness: An Experimental Study

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Why is there significant political support for progressive taxation and equalizing government transfers in western democracies? Possibilities include individual socail preferences for a less unequal distribution than what market forces alone would dictate, demand for social insurance, or successful political coalitions to redistribute away from the rich. We study the relative importance of fairness preferences, risk aversion, and self-interest in determining support for redistribution through a set of experiments in which a large number of subjects are asked to choose what level of taxation to implement under different decision conditions and with four alternative determinants of pre-tax income (two task-based, one random, and one based on socio-economic background). Treatments using varying costs of redistribution to the decision-maker and efficiency losses to recipients are used to study willingness to pay for redistribution and concern for aggregate inefficiency. Most of our subjects prefer that there be less inequality among others and demand for redistribution responds in predictable ways to the cost of taxation and to the dead-weigh loss associated with it. The external validity of the experiment is supported by the high correlation between tax decisions and political preferences. We also find evidence that preferred levels of redistribution are highly responsive to whether pre-tax incomes are determined according to task performance, a trend that is much more evident among men than among woman. Comparisons between redistributive choices under different experimental conditinos provide interesting insights with regard to the relative importance of inequality aversion and self-interest when choosing under uncertainty and when uncertainty is resolved. In the first case, individuals expectation about their future position in the income distribution has a considerable impact on their tax choices. When sure of the effect on their own earnings, subjects tax choices are primarily goverened by self-interest, but fairness preferences continue to play a role.

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Paper provided by Brown University, Department of Economics in its series Working Papers with number 2007-13.

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Date of creation: 2007
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Handle: RePEc:bro:econwp:2007-13

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Postal: Department of Economics, Brown University, Providence, RI 02912

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  1. Milanovic, Branko, 2000. "The median-voter hypothesis, income inequality, and income redistribution: an empirical test with the required data," European Journal of Political Economy, Elsevier, vol. 16(3), pages 367-410, September.
  2. Benabou, Roland & Tirole, Jean, 2004. "Belief in a Just World and Redistributive Politics," Papers 08-15-2005a, Princeton University, Research Program in Political Economy.
  3. Dirk Engelmann & Martin Strobel, 2004. "Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments," American Economic Review, American Economic Association, vol. 94(4), pages 857-869, September.
  4. Krawczyk, Michal, 2010. "A glimpse through the veil of ignorance: Equality of opportunity and support for redistribution," Journal of Public Economics, Elsevier, vol. 94(1-2), pages 131-141, February.
  5. Tyran, Jean-Robert & Sausgruber, Rupert, 2006. "A little fairness may induce a lot of redistribution in democracy," European Economic Review, Elsevier, vol. 50(2), pages 469-485, February.
  6. Charness, Gary & Rabin, Matthew, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt3d04q5sm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  7. Lucy F. Ackert & Jorge Martinez-Vazquez & Mark Rider, 2007. "Social Preferences And Tax Policy Design: Some Experimental Evidence," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 487-501, 07.
  8. Fong, Christina M. & Luttmer, Erzo F.P., 2011. "Do fairness and race matter in generosity? Evidence from a nationally representative charity experiment," Journal of Public Economics, Elsevier, vol. 95(5), pages 372-394.
  9. Konow, James, 2006. "Is Fairness in the Eye of the Beholder? An Impartial Spectator Analysis of Justice," MPRA Paper 2730, University Library of Munich, Germany.
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