We design an experiment to study the effects of social identity on preferences over redistribution. The experiment highlights the trade-off between social identity concerns and maximization of monetary payoffs. Subjects belonging to two distinct natural groups are randomly assigned gross incomes and vote over alternative redistributive tax regimes, where the regime is chosen by majority rule. We find that a significant subset of the subjects systematically deviate from monetary payoff maximization towards the tax rate that benefits their group when the monetary cost of doing so is not too high. These deviations cannot be explained by efficiency concerns, inequality aversion, reciprocity, social learning or conformity. Finally, we show that behavior in the lab helps explain the relationship between reported income and stated preferences over redistribution observed in survey data.
Bibliographical noteFunding Information:
We thank Roland Benabou, Naomi Feldman, Christina Fong, Rebecca Morton, Eyal Winter, two anonymous referees and James Andreoni, the co-editor of this journal, for very helpful discussions, comments and suggestions. We are grateful to Yaron Aronshtam for providing outstanding research assistance and Tomer Aharoni for programming the experiment. The paper has benefited from the comments of audiences at the conference on Affect, Motivation and Decision Making, the AEA meetings (Chicago), Conference of the French Economic Association on Behavioral Economics, as well as seminars at Ben Gurion University, The Hebrew University of Jerusalem, New York University and Princeton University. We gratefully acknowledge the financial support of the Maurice Falk Institute for Economic Research which made this project possible. Esteban Klor thanks the Israeli Foundation Trustees and Moses Shayo thanks the Center for Health and Wellbeing at Princeton University for their financial support. All errors and mistakes remain our own.
- Experimental economics
- Income redistribution
- Social identity
- Social preferences