Meritocracy and Income Redistribution: a real-effort task experiment with tax avoidance

This paper examines how voters choose both the tax rate and the level of tax avoidance in different societies, considering luck versus merit as the source of pre-tax income inequality. We propose a laboratory experiment based on the redistributive politics and labor market model by Jiménez-Jiménez et al. (2025). In this model, skilled and unskilled workers decide, by majority voting, between two tax schemes (low and high), with only skilled workers able to avoid taxes. Our experimental design includes four treatments that vary the cost of tax avoidance and the source of initial pre-tax income inequality, with the role of skilled or unskilled workers determined either through a tournament or randomly. Our findings suggest that in economies where tax avoidance is easy, luck as the source of pre-tax income inequality leads individuals to behave more frequently as in the theoretical equilibrium in which the high tax rate is implemented, and skilled workers avoid taxes. Conversely, in economies with a high cost of tax avoidance, meritocracy reinforces the theoretical equilibrium characterized by a higher frequency of votes for the low tax rate and lower levels of tax avoidance. Notably, meritocracy appears to improve income inequality when the cost of tax avoidance is high, but it harms income inequality when that cost is low.