Publication: The Social Tax: Redistributive Pressure and Labor Supply
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2022-08
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2023-01-11
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In low-income communities, pressure to share income with others may disincentivize work, distorting labor supply. This paper documents that across countries, social groups that undertake more interpersonal transfers work fewer hours. Using a field experiment, the study enabled piece-rate factory workers in Côte d'Ivoire to shield income using blocked savings accounts over 3-9 months. Workers could only deposit earnings increases, relative to baseline, mitigating income effects on labor supply. The study varied whether the offered account was private or known to the worker's network, altering the likelihood of transfer requests against saved income. When accounts were private, take-up was substantively higher (60% vs. 14%). Offering private accounts sharply increased labor supply—raising work attendance by 10% and earnings by 11%. Outgoing transfers did not decline, indicating no loss in redistribution. The estimates imply a 9–14% social tax rate. The welfare benefits of informal redistribution may come at a cost, depressing labor supply and productivity.
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“Carranza, Eliana; Donald, Aletheia; Grosset, Florian; Kaur, Supreet. 2022. The Social Tax: Redistributive Pressure and Labor Supply. Policy Research Working Papers;10155. © World Bank. http://hdl.handle.net/10986/38459 License: CC BY 3.0 IGO.”
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