Identity and Redistribution: Theory and Evidence

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April 2019
Paper author(s): 
Sanjit Dhami
Emma Manifold
Ali al-Nowaihi
Topic: 
Fiscal Policy - Public and Welfare Economics
Theory
Year: 
2019

We contribute to a growing literature on redistribution and identity. We propose a theoretical model that embeds social identity concerns, as in Akerlof and Kranton (2000), with inequity averse preferences, as in Fehr and Schmidt (1999). We conduct an artefactual ultimatum game experiment with registered members of British political parties for whom both identity and redistribution are salient. The empirical results are as follows. (1) Proposers and responders demonstrate ingroup-favoritism. (2) Proposers exhibit quantitatively stronger social identity effects relative to responders. (3) As redistributive taxes increase, offers by proposers and the minimum acceptable offers of responders (both as a proportion of income) decline by almost the same amount, suggesting a shared understanding that is characteristic of social norms. (4) Subjects experience more disadvantageous inequity from outgroup members relative to ingroup members.

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