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On the Effects of Transparency and Reciprocity on Labor Supply in the Redistribution Systems

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Chugunova,  Marina
MPI for Innovation and Competition, Max Planck Society;

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Citation

Chugunova, M., Nicklisch, A., & Schnapp, K.-U. (2017). On the Effects of Transparency and Reciprocity on Labor Supply in the Redistribution Systems. Working Paper / DFG-Research Group 2104, Nr. 2017-19.


Cite as: http://hdl.handle.net/21.11116/0000-0002-6A6C-F
Abstract
Although taxation distorts work incentives both for taxpayers and transfer recipients, its net effect on labor provision is shown to be less severe than predicted by the theory. It is likely that the reciprocity between taxpayers and transfer recipients plays an important role in mitigating the negative consequences of redistribution and maintaining a high level of effort. To check it we run a series of real-effort experiments exploring the production effects of taxation in the environment with unilateral monitoring: Taxpayers can continuously monitor the effort of the transfer recipient, which is designed to trigger reciprocity. Surprisingly, we find that monitoring decreases the total labor provision: recipients produce significantly less under monitoring, while the production of the taxpayers remains unchanged.