Transcript Attitudes Towards Redistribution

ATTITUDES TOWARDS
TAXATION
ANANDI MANI, SHARUN MUKAND AND DANIEL
SGROI
Today’s Talk
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Preview
Motivation I: self-serving bias and theory
Motivation II: luck vs. ability and attitudes towards
taxation
Experimental Design (including screen shots)
Results
Preview (the idea in a nutshell)
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People bias their recall to bolster their self-image.
They would rather think of themselves as hardworking than lazy:
blame “bad luck” when they fail, attribute success to high
effort/ability.
People are more/less sympathetic towards those who are like
themselves.
To be precise: the “deserving rich” are more likely to want to see
lower taxes on effort than the “lucky rich”…
…unless the “lucky rich” can fool themselves into thinking luck was
not an issue when they succeeded: essentially attitudes are a function
of own-experiences but crucially, also of your perceptions of what
happened – and these perceptions can be biased.
We show this is true in a controlled lab environment.
And have field tests to come…
Motivation I
The theory of self-serving bias (SSB)
Memory is Malleable…
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“I have done this, says my memory. I cannot have done that,
says my pride, remaining inexorable. Finally – memory yields.”
[Friedrich Nietzsche, Beyond Good and Evil; from B&T
QJE2002]
“I had during many years followed the Golden Rule, namely,
that whenever a published fact, a new observation or thought
came across me, which was opposed to my general results, to
make a memorandum of it without fail and at once; for I had
found by experience that such (contrary and thus unwelcome)
facts and thoughts were far more apt to escape from memory
than favorable ones.” [Charles Darwin in The Life of Charles
Darwin, by Francis Darwin; from B&T QJE2002].
Bias in Assessing Luck vs. Ability?
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"For almost two centuries, Spain has hosted an enormously popular
Christmas lottery. Based on payout, it is the biggest lottery in the
world and nearly all Spaniards play. In the mid 1970s, a man
sought a ticket with the last two digits ending in 48. He found a
ticket, bought it, and then won the lottery.” In a subsequent interview,
he argued that luck had nothing to do with his choice of lottery …
and he was so intent on finding that particular number, “because” he
replied, “I dreamed of the number seven for seven straight nights.
And 7 times 7 is 48.”
-- Quoted in Stanley Reisner (1977)
Suggestive Evidence of a Self-Serving Bias (SSB) in Beliefs about
reasons for Own Success.
Theory in a Nutshell
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Put (very) simply, the idea is that we move from maximising utility by
choosing actions or gambles to being able to bias our recall (or
information set) in a way that boosts our self-image which forms
part of our utility.
E.g. We may have had an argument yesterday (we cannot forget
that fact) but we can easily “bias” our memory of whether we won
the argument or not to boost our present utility.
This is a “self-serving bias” or SSB since the bias in memory is
designed to boost our own utility.
We can also consider “Projection Bias” wherein you might think of
others as “like yourself” – so you project your beliefs about your
own situation onto others (“I got rich through hard work, you are
poor, so you must have been lazy...”)
Key Papers
Key papers: Benabou & Tirole: QJE2002 “Selfconfidence and personal motivation”, JPE 2004
“Willpower and personal rules”, QJE2006
“Belief in a just world and redistributive
politics”
 Carillo & Mariotti: REStuds2000 “Strategic
ignorance as a self-discipline device”
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Motivation II
How beliefs about the importance of luck vs.
ability in life can influence attitudes towards
taxation…
What Shapes Attitudes
1.
2.
HOMO ECONOMICUS EFFECT: An individual’s attitude is a
function of effect of redistribution on his net income. (linear
redistributive scheme – all individuals with income less than
average, will favor a higher tax rate) [Roberts, 1977; Varian,
1979]
EFFECT OF SOCIAL PREFERENCE: Individuals are endowed with
a Social Preferences over resource allocations to all individuals
in society (Arrow, 1963). So there need not be a direct link
between level of individual income and support for
redistribution.
Source of Income may affect Attitudes to
Redistribution
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Given Social Preferences (Efficiency, Fairness)…
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Decisions made behind a ‘Veil of Ignorance’ need not favor high
taxes (or full equality), if incentives matter for output.
If individuals think that effort should be rewarded, they may favor
lower taxes.
Social Learning environment re: role of Hard work vs. Luck can
also affect attitudes towards tax-spend policies – Piketty, (QJE
1995).
Beliefs about Luck vs. Effort and Attitudes
to Redistribution
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Attitudes towards redistribution differ both within and across
countries….(World Values Survey, 2001)
America
Europe
Poor people “trapped” in 29%
poverty
60%
Poor are lazy and lack
willpower
54%
30%
In the long run, hard
work brings better life
59%
34-43%
….and
are correlated with differences in attitudes towards
taxation and spending
Social Expenditure and Beliefs
(Alesina and Glaeser, 2001)
Reasons for Heterogeneous Beliefs re: Role of
Luck vs. Effort in Life Outcomes
Different underlying Production Functions: Some individuals
are in occupations where effort is more/less important for
outcomes.
Identical Production Function – but Learning Bias
1.
2.
1.
2.
Due to Social Learning Environment (Piketty)
Due to Self-Serving Bias…
Summing Up…
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Some ways that SSB and Projection can work:
 Beliefs
of the Rich:
 Effort/ability
main driver of life income outcomes, i.e.
 He/she got rich (mainly) because of own effort. (SSB) Other
rich individuals also got rich (mainly) because of own effort.
And poor are mostly lazy (Projection Bias)
 Beliefs
 Luck
of the Poor:
is the main driver of life income outcomes.
Related Literature
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Taxation: Piketty and Saez (QJE2011), Diamond and
Saez (JEP2011)
Attitudes towards redistribution: Alesina and Glaeser,
(2001). Alesina and Angeletos (AER2005), Piketty
(QJE1995), Di Tella, et al (QJE2006); GiulianoSpilimbergo(2009)
Psychology. Blind Bias Spot. Pronin (2006, 2009)
Experimental Design
Our Questions
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BEHAVIOR (Motivation I)
Do individuals have a SSB/Projection Bias in how they
update and process information (on the role of Luck versus
Ability in shaping Life outcomes)?
PUBLIC ECONOMICS (Motivation II)
What are the behavioral underpinnings of Attitudes
towards Tax and Redistribution?
Three Hypotheses
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1: When choosing what tax rate to set, what you are
taxing matters (luck or ability/effort).
2: When choosing what tax rate to set, your own life
experiences matter (have you been lucky or displayed
high ability/effort).
3: People will make use of self-serving biases when
they can to bolster their self-perceptions.
Also we examine supplementary issues such as the
importance of gender, background, prior political
beliefs, etc.
Why the Lab?
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We are hoping to produce a causal link between attitudes and
choices
Moreover we are looking at a prior link between
experiences/information and attitudes
The former could potentially be done in a field/survey context
(albeit with loose incentives)
The later requires more control: only really feasible in a lab
where we can endow people with different information and
experiences (essentially gift them with luck or not)
Outline of Key Features
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Individuals undertake a task that involves both “effort” and “luck”
(a lottery), one of which turns out to matter.
Task completion results in a payout: they become “Rich” or “Poor”.
Rich can be of two types: “Deserving” and “Undeserving” (Lucky)
Rich. Poor can be of two types: “Lazy” Poor and “Unlucky” Poor.
Subjects choose Tax Rates under Two Information Treatments:
Partial Information about sources of Own Income (Scope to deceive
oneself about role of luck, depending on own outcome).
Full Information about sources of Own Income (harder to deceive
oneself).
Examine Tax rates chosen to test our hypotheses.
Timeline
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Registration and log-in.
Introductory questionnaire (1)
Additions task (2): 5 minutes to add up a series of 5 2-digit
numbers) and if they exceed a threshold they are allocated
as HIGH effort (equivalently LOW effort).
Random Lottery (3): each subject endowed with HIGH or
LOW lottery payouts with 50:50 (known) odds.
Partial or full information on their performance is revealed.
Tax choices (4): 2 screens designed to pick-up how they
would tax “luck” and “effort”.
Payment and Debriefing
Logistical Details
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Recruitment and registration fully anonymous.
We need a good number of subjects to cover our
hypotheses (we will be comparing across subgroups)
To that end, we obtained 452 subjects in total – that
is a large number for a lab experiment.
Fully computerized on-screen terminals (complete
privacy).
Fully incentivized: £5 show-up fee with the potential to
win up to £20 for 45 minutes work.
(1) Questionnaire Content
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Initial questions include:
 Gender;
 Age;
 Subject/Maths
ability;
 “Background” (parents’ occupation, type of school –
state or private, student loan);
 Political views & attitudes to luck and hard work
 Brief probability question.
(2) The Effort Task
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Subjects have 5 minutes to undertake some simple
additions questions.
Each question consists of Five 2-digit numbers, e.g.
 36
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+ 41 + 84 + 72 + 92 = ?
Typically we saw between 5 and 20 correct
additions in the pilot.
We set a threshold of around 15, above which they
are categorized (by the software) as HIGH effort,
below which LOW effort.
(3) The Wealth Lottery
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Subjects face a simple probability (with a prior of
50:50) that they are awarded a LOW lottery win or
HIGH lottery win.
They know the density but not necessarily their own
outcome of the lottery (depends upon their
information treatment).
Rich and Poor
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Total earnings follow a simple scheme:
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Either the LOTTERY or ADDITIONS task is chosen at random to be
the important task.
If the lottery is deemed important then subjects are allocated to be
RICH if they scored HIGH in the lottery or POOR if they scored
LOW.
If the additions task is deemed important then subjects are
allocated to RICH if they scored above the threshold (X) and POOR
otherwise.
Common Info (Prior to addition task): Payment Scheme,
Distribution of threshold (X), Expected Distribution of Rich vs.
Poor outcomes .
A sensible choice of X is based on Pilot data (varies around
15). It is not determined for sure to avoid certainty in the
minds of the subjects about whether they have made it or not.
Information Treatments
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Roughly half the subjects receive Full information (FI)
about their performance, the rest Partial Information (PI).
Full information (FI) includes
 Wealth
Lottery Outcome
 Number of correct Additions
 Threshold X
 Outcome: Rich or Poor (pre-tax)
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Partial Information (PI) includes only outcome: Rich or Poor
(4) Tax Preferences
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All subjects asked to set a tax rate (for the rich) on “luck”
(income if obtained via the lottery) and a tax rate on
“effort” (income if obtained via the additions task).
A key variable we will examine later is the difference
between the two tax rates.
One person per session randomly chosen as “tax setter” and
his/her tax is used. (Subjects know this).
Two Cases (each applied in half the sessions, known to
subjects):
1.
2.
Tax Case 1: Chosen Tax rate is applied to all subjects based on
their total (pre-tax) earnings. Tax Revenue is redistributed
equally among all subjects.
Tax Case 2: As in (1) above except the “tax-setter” is not subject
to taxation or redistribution (they are instead paired with
another tax-setter).
Results
Methodology
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We have just finished collecting data so this will be a
rough overview…
We will focus on the tax-setter excluded results (the
tax-setter included are very similar except rates tend to
be lower among the rich for obvious (HOMO
ECONOMICUS) reasons.
The key variable of interest will be the difference
between the tax rate on “luck” (the lottery tax) and on
“effort” (the additions tax).
With 452 subjects we can afford to split the sample
into rich/poor, or full information/partial information
when required.
Hypothesis 1
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Does the source of wealth of the person to be
taxed matter?
Here we just need to check if tax rates are chosen
to be higher for “luck” than “ability” across all
possible subjects – information type does not matter
here since they know for sure the source of the
person being taxed; so the full sample can be used.
Easily done through eye-balling the raw averages
and running t-tests.
Tax Rates (setter excluded)
Overall
Full Information
No. of Addition Lottery No. of Addition
obs.
Tax
Tax
obs.
Tax
Lucky Rich
Deserving
Rich
RICH
Unlucky
poor
Low effort
poor
POOR
Partial Information
Lottery No. of Addition Lottery
Tax
obs.
Tax
Tax
108 26.3 43.4 39 29.42 40.89 29 24.8 39.8
68 19.3 40.3 47 15.28 44.28 61 23.9 42.2
176 23.6 41.5 86 23.01 42.43 90 22.7 40.5
116 43.3 69
65 50.8 72.16 51 44.9 73.9
160 47.9 72.9 78 42.01 66.23 82 45.2 71.7
276 46 70.7 143 46.81 68.93 133 45.1 72.5
Interpretation
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Eye-balling makes it clear that hypothesis 1 is right, and in
fact the difference between tax rates is very high.
This is supported by a battery of t-tests suggesting with very
high confidence that the tax on “luck” is higher than the tax
on “effort/ability” across the board.
Note: this also coincides with optimal tax ideas (we should
tax something that is not under our control...like “luck”) and
not de-incentivize hard work.
However, while of some interest, this is not very surprising –
nonetheless without this result hypotheses 2 & 3 would not
make sense...
Hypothesis 2
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Does own-source of income matter?
Our underlying hypothesis is that it does – and that those
who know they got rich through effort will behave
differently from those who know they got rich through luck.
We need to restrict the sample to those who know their
source of income (the full information treatment) – which will
reduce the number of observations.
Then we can regress the tax rate on effort and luck on what
matters for the tax-setter’s income (luck or effort), together
with any controls that seem to matter (from the
questionnaire).
Regression Variables
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Effort Income: the income gained by subjects from
effort (a dummy = 1 if they were “high effort” types.
Female: gender variable (1 = female, 0 = male).
Politics (political spectrum measure, 1-7: higher
indicates more right-wing in the initial questionnaire).
Constant: a direct measure of the average tax rate, or
average difference between rates.
Finally, the number of observations reflects the different
subgroups (rich vs. poor, full info only).
Regressions on The Tax Difference by Source of
Income
Regression No
Sample
Inc Source is
Effort
Female
Politics
Constant
Observations
R-squared
1
FI RICH
2
FI RICH
Effort Tax
Luck Tax
3
FI RICH
Luck Tax Effort Tax
4
FI POOR
5
FI POOR
Effort Tax
Luck Tax
-14.143*** 3.388
[4.213]
[6.251]
6
FI POOR
Luck Tax Effort Tax
17.000*** 8.792
-5.938 -13.685**
[6.043]
[5.436]
[5.044]
[5.664]
-3.972
-14.443**
[5.829]
[5.722]
0.813
1.687
[3.190]
[2.456]
29.426*** 40.894*** 11.008 42.015*** 72.169*** 31.431***
[3.538]
[4.253] [11.645] [3.907]
[3.576] [11.356]
86
86
86
143
143
143
0.11
0.00
0.11
0.02
0.01
0.1
Robust standard errors in brackets; * sig at 10%; ** sig at 5%; *** sig at 1%
Interpretation
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Powerful support for hypothesis 2 coming from the rich:
The rich who got rich through effort are significantly more
generous when setting the effort tax – pulling down the rate
by over 14%.
 The difference (luck – effort) widens for the high effort rich
– though the affect is coming through the effort tax rate
falling not the luck tax rate rising.
 The results from the poor are exactly opposite (which again
confirms hypothesis 2).
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Gender matters: females seem to care about ex post
inequality regardless of income source as compared to
males.
Political stance unimportant.
Hypothesis 3
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To what extent to people self-delude when forming their
attitudes?
The key here is to compare the partial vs. full information treatments.
Do those who do not know why they were successful behave
differently from those who do – and do they do so in a direction
that suggests self-serving biases are in place.
We can eyeball the original table to see something interesting is in
place and then confirm with some regressions.
The controls from the questionnaire also suggest some interesting
gender effects, as well as a role for political leanings and private
schooling.
New Regression Variables
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Full Info: Set equal to 1 if they were in the FI
treatment.
Interaction: Set equal to 1 only if their income
source was “effort” (the additions task) and they
knew it (FI treatment).
Regressions on The Tax Difference by Information
Regression No
Sample
Inc Source is Effort
7
8
9
10
FI & PI RICH
FI & PI RICH
FI & PI POOR
FI & PI POOR
Luck Tax - Effort Luck Tax - Effort Luck Tax - Effort Luck Tax - Effort
Tax
Tax
Tax
Tax
1.51
[5.795]
Female
Politics
Full Information
Interaction
Constant
Observations
R-squared
-4.401
[5.015]
16.021*
[8.201]
15.869***
[3.432]
176
0.06
0.459
[5.350]
-5.419
[4.031]
-4.032*
[2.103]
-4.288
[5.025]
17.310**
[7.998]
34.600***
[8.790]
176
0.08
-2.595
[6.327]
1.095
[6.722]
-12.135
[8.544]
29.059***
[5.009]
276
0.03
-1.615
[6.109]
-14.042***
[4.233]
3.236*
[1.840]
0.154
[6.600]
-11.776
[8.318]
24.883***
[9.012]
276
0.08
Interpretation
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Again, support for hypothesis 3 (SSBs matter):
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A significant interaction term indicates that if I am “deserving”
rich and I know it I become more sympathetic towards the rich
who obtained their income through effort.
Again, significance falls off on the poor – which makes sense (the
taxes are on the rich, not the poor, so “projection” is less relevant
here) – but the signs make sense (if I find out I am a lowperforming poor then I am not especially sympathetic towards the
rich who obtained their income through effort).
Gender again is important but now so too is political
leaning: the more right wing (or female) I am the more I
want to shrink the gap between tax rates if I am rich. If I am
poor this reverses for the right wing, so they become keener
on being relatively tough (lenient) on luck (effort).
Conclusions
Results Summary
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People tax luck more heavily than effort/ability.
Own source of income matters – the lucky rich are much
more lenient towards those others who get rich through
luck (remember they are not subject to the tax
themselves…), and the high effort rich are much more
sympathetic towards those who get rich through effort.
SSB seems very powerful among the rich, with those
who know they are lucky much more lenient than those
who are not so sure – suggesting self-delusion is in
place.
Interesting Insights
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Much of the work is being driven by the rich, but
that makes sense (the poor are not being taxed so
projection is less of an issue).
While we focus on the difference between luck and
effort taxes, much of the movement is in terms of
the effort tax.
Gender matters with females having a different
notion of fairness (what matters is ex post
inequality, less so source of income).
Next Steps
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This matters for so much within Economics including
political economy (voting theory), information economics,
public economics and of course it changes how we think
about the politics of taxation…
But we need to do much more...
More econometrics (so much more to check!), including a
more thorough analysis of the questionnaire data (e.g.
cultural background).
 The next stage in the project will be to take to the field with
a survey and look at how real-life shocks affect attitudes:
work on this has already begun.
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Many thanks!