A Caltech Library Service

Equilibrium Tax Rates and Income Redistribution: A Laboratory Study

Agranov, Marina and Palfrey, Thomas R. (2012) Equilibrium Tax Rates and Income Redistribution: A Laboratory Study. Social Science Working Paper, 1385. California Institute of Technology , Pasadena, CA. (Unpublished)

[img] PDF (SSWP 1385 - Sep. 2012 (Revised Jan. 2014)) - Submitted Version
See Usage Policy.

[img] PDF
See Usage Policy.


Use this Persistent URL to link to this item:


This paper reports results from a laboratory experiment that investigates the Meltzer-Richard model of equilibrium tax rates, inequality, and income redistribution. We also extend that model to incorporate social preferences in the form of altruism and inequality aversion. The experiment varies the amount of inequality and the collective choice procedure to determine tax rates. We report four main findings. First, higher wage inequality leads to higher tax rates. The effect is significant and large in magnitude. Second, the average implemented tax rates are almost exactly equal to the theoretical ideal tax rate of the median wage worker. Third, we do not observe any significant differences in labor supply or average implemented tax rates between a direct democracy institution and a representative democracy system where tax rates are determined by candidate competition. Fourth, we observe negligible deviations from labor supply behavior or voting behavior in the directions implied by altruism or inequality aversion.

Item Type:Report or Paper (Working Paper)
Palfrey, Thomas R.0000-0003-0769-8109
Additional Information:Revised January 31, 2014. 1The financial support of the National Science Foundation (SES-0962802) and the Gordon and Betty Moore Foundation is gratefully acknowledged. We are grateful for comments from seminar audiences at the NBER, Caltech, Chicago, UCSB, University of Zurich, ETH, EUI, Berkeley, USC, Higher School of Economics Moscow, SAET, especially Ernesto Dal Bo, John Londregan, and Thomas Romer. Kirill Pogorelskiy provided excellent research assistance.
Group:Social Science Working Papers
Funding AgencyGrant Number
Gordon and Betty Moore FoundationUNSPECIFIED
Subject Keywords:Income taxation, Experiment, Voting
Series Name:Social Science Working Paper
Issue or Number:1385
Record Number:CaltechAUTHORS:20170726-144342297
Persistent URL:
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79440
Deposited By: Hanna Storlie
Deposited On:07 Aug 2017 21:38
Last Modified:22 Nov 2019 09:58

Repository Staff Only: item control page