The Social Tax : Redistributive Pressure and Labor Supply

In low-income communities, pressure to share income with others may disincentivize work,distorting labor supply. This paper documents that across countries, social groups that undertake more interpersonaltransfers work fewer hours. Using a field experiment, the study enabled piece-rate factory workers in Côted'Ivoire to shield income using blocked savings accounts over 3-9 months. Workers could only depositearnings increases, relative to baseline, mitigating income effects on labor supply. The study varied whether theoffered account was private or known to the worker's network, altering the likelihood of transfer requestsagainst saved income. When accounts were private, take-up was substantively higher (60% vs. 14%). Offering privateaccounts sharply increased labor supply—raising work attendance by 10% and earnings by 11%. Outgoing transfersdid not decline, indicating no loss in redistribution. The estimates imply a 9–14% social tax rate. The welfarebenefits of informal redistribution may come at a cost, depressing labor supply and productivity.