Democracy and the Disincentive Effects of Redistribution

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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 13.11.2007, 12:15 - 13:30

   

Presentation by 

Rupert Sausgruber (University of Innsbruck)
   

Abstract:

We experimentally test how voter misperception distorts referendum choices and economic outcomes. Participants vote on a proposal to tax incomes earned in a real effort task and to redistribute tax revenues per capita. Voters with low productivity gain from redistribution if those with high productivity only weakly reduce output, but lose if the disincentive effect of taxation is strong. Misperception can bias referendum outcomes and the extent of redistribution either way. For example, if voters overestimate the disincentive effects of redistribution, they reject redistribution policies that would have benefited them. We find that voters tend to underestimate the disincentive effect which induces excessive redistribution.

   
   
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