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Innovation and Entrepreneurship Research

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

Chugunova, Marina; Nicklisch, Andreas; Schnapp, Kai-Uwe (2022). Redistribution and Production with a Subsistence Income Constraint: A Real-Effort Experiment FinanzArchiv - Public Finance Analysis, 78 (1/2), 208-238.

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.

External Link (DOI)

Also published as: Working paper // DFG Research Group 2104 ; No. 2017,18