IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
This paper provides both a theoretical framework and an experimental test to analyze how individual responsibility affects social preferences for redistribution in settings where individuals are differentially subjected to the probability of a productivity shock. Our results confirm the predictions of the theoretical section of the paper which presents the redistribution game as a public good game.
We find that individuals ask for more redistribution whenever observable differences are less dependent by personal responsibility. We also find complementarity among individuals as far as the taking of personal responsibility is concerned. Unexpectedly (for standard theory) this means that free-riding behaviour becomes less frequent as the level of responsibility in the society goes up. We confirm that the prospect of upward mobility increases the probability that an individual asks for zero redistribution; this result provides support to the POUM (prospects of upward mobility) hypothesis advanced by Benabou and Ok (2001). Some further interesting results concerning the link between individual values and preferences for redistribution
are emphasized. The issues at hand are of great importance as far as the fundamental problem of reforming welfare systems in such a way as to make them more sound with individual incentives is concerned.