Abstract
A real-effort experiment is conducted in order to detect preferences for one out of three different models of the Welfare State characterized by different tax-and-transfer schemes. We reproduce a small society in the lab where: Subjects are grouped in three stylized classes (the rich, the middle class and the poor) on the basis of their performance in a real-effort activity; income and risk are assigned according to the class; tax revenue is spent to refund unlucky people and to provide a public good. Experimental subjects must choose (both under and without a veil of ignorance concerning their position in the society created in the lab) among (a) a baseline proportional scheme, where the State is neutral with respect to risk heterogeneity; (b) an actuarially fair scheme where low ability and low earnings subjects bear full individual responsibility for risk exposure and (c) a progressive scheme where mutual risk insurance spreads risk across all subjects such that low ability and low earnings individuals are compensated. Our most relevant finding is that preference is motivated less by a justice principle and more by self-interested considerations on the expectations surrounding one’s own position in the society.
Highlights
Many governments of advanced countries are reforming their Welfare States
In order to collect this information, we reproduce a small society in the lab where: (1) Subjects are grouped in three stylized classes on the basis of their performance in a real-effort activity; (2) income and risk of losing part of the experimental earnings are assigned according to the class; (3) tax revenue is spent to refund unlucky people who lose part of their income and to provide a public good and (4) subjects must choose among three different way to finance the Welfare State (WS)—neutral, individualistic and prioritarian1 —both before and after being informed of their position in the society created in the lab
How should we evaluate the finding that without the VOI, the subjects belonging to the middle class seemed to be more inclined to choose the Prioritarian contract? This group of middle income people was composed of subjects who took account of the fact of being less skilled than expected and switched to this contract when the VOI was dropped and of subjects who confirmed their choice in favor of the redistributive Welfare State
Summary
Many governments of advanced countries are reforming their Welfare States. As well-known, welfare systems consist of the pooling of fiscal revenues used by the public sector to subsidize the unemployed workers with monetary transfers, to finance the in-kind services of the health care system and of public school and universities, to smooth income across the life-cycle from the working period to retirement and to provide relief to the poor with free meals, food stamps and shelters. We perform a within-subjects experiment in the lab in which we elicit preferences for different schemes of taxation to finance the Welfare State. In order to collect this information, we reproduce a small society in the lab where: (1) Subjects are grouped in three stylized classes (the rich, the middle class and the poor) on the basis of their performance in a real-effort activity; (2) income and risk of losing part of the experimental earnings are assigned according to the class; (3) tax revenue is spent to refund unlucky people who lose part of their income and to provide a public good and (4) subjects must choose among three different way to finance the Welfare State (WS)—neutral (proportional), individualistic (actuarially fair) and prioritarian (progressive)1 —both before and after being informed of their position in the society created in the lab.
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