Title

Reference Points and Redistributive Preferences: Experiment Evidence

Author(s)

Jimmy Charité Jimmy Charité (Columbia University)

Raymond Fisman Raymond Fisman (Boston University)

Ilyana Kuziemko Ilyana Kuziemko (Princeton University)

Abstract

If individuals evaluate outcomes relative to the status quo, then a social planner may limit redistribution from rich to poor even in the absence of moral hazard. We present two experiments suggesting that individuals, placed in the position of a social planner, do in fact respect the reference points of others. First, subjects are given the opportunity to redistribute unequal, unearned initial endowments between two anonymous recipients. They redistribute significantly less when the recipients know the initial endowments (and thus may have formed corresponding reference points) than when the recipients do not know (when we observe near-complete redistribution). Subjects who are themselves risk-seeking over losses drive the effect, suggesting they project their own loss-aversion onto the recipients. In a separate experiment, respondents are asked to choose a tax rate for someone who (due to luck) became rich either five or one year(s) ago. Subjects faced with the five-year scenario choose a lower tax rate, indicating respect for the more deeply embedded (five-year) reference point. Our results thus suggest that respect for reference points of the wealthy may help explain why voters demand less redistribution than standard models predict.

Creation Date

2016-07

Section URL ID

Paper Number

2016-3

URL

https://scholar.princeton.edu/sites/default/files/kuziemko/files/draft_15july2016_ik.pdf

File Function

Jel

C9, D63, H21, H23

Keyword(s)

Redistributive preferences, optimal taxation, reference dependence

Suppress

false

Series

13