A01
Heterogeneity of Expectations and Preferences and their Joint Impact on Individual Choices
Discussion Papers

Discussion Paper No. 284
November 10, 2021

Preferences over Taxation of High-Income Individuals: Evidence from a Survey Experiment

Author:

Dirk Engelmann (HU Berlin)
Eckhard Janeba (University of Mannheim)
Lydia Mechtenberg (University of Hamburg)
Nils Wehrhöfer (Deutsche Bundesbank)

Abstract:

Mobility of high-income individuals across borders puts pressure on governments to lower taxes. A central tenet of the corresponding textbook argument is that mobile individuals react to tax differentials through migra- tion, and in turn immobile individuals vote for lower taxes. We investigate to which extent this argument is complete. In particular, political ideology may influence voting on taxes. We vary mobility and foreign taxes in a survey experiment within the German Internet Panel (GIP), with more than 3,000 individuals participating. We find that while the treatment effects qualitatively confirm model predictions how voters take mobility of high-income earners into account when choosing domestic taxes, ideology matters: left-leaning high-income individuals choose higher taxes and emigrate less frequently than right-leaning ones. These findings are in line with the comparative- static predictions of a simple model of inequality aversion when the aversion parameters vary with ideology.

Keywords:

taxation; mobility; ideology; survey experiments;

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Discussion Paper No. 269

Signaling Motives in Lying Games

Author:

Tilman Fries (WZB Berlin)

Abstract:

This paper studies the implications of agents signaling their moral type in a lying game. In the theoretical analysis, a signaling motive emerges where agents dislike being suspected of lying and where some types of liars are more stigmatized than others. The equilibrium prediction of the model can explain experimental data from previous studies, in particular on partial lying, where some agents dishonestly report a non payoff-maximizing report. I discuss the relationship with previous theoretical models of lying that conceptualize the image concern as an aversion to being suspected of lying. The second half of the paper tests the theoretical predictions in an experiment. In contrast to previous literature, the experimental results show no evidence that image concerns influence lying behavior in the laboratory.

Keywords:

lying; image concerns; honesty; experiment;

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Discussion Paper No. 253
November 9, 2021

Face Masks Increase Compliance with Physical Distancing Recommendations during the COVID-19 Pandemic

Author:

Gyula Seres (HU Berlin)
Anna Helen Balleyer (University of Groningen)
Nicola Cerutti (Berlin School of Economics and Law)
Anastasia Danilov (HU Berlin)
Jana Friedrichsen (DIW, HU Berlin)
Yiming Liu (HU Berlin, WZB Berlin)
Müge Süer (HU Berlin)

Abstract:

Governments across the world have implemented restrictive policies to slow the spread of COVID-19. Recommended face mask use has been a controversially discussed policy, among others, due to potential adverse effects on physical distancing. Using a randomized field experiment (N=300), we show that individuals keep a significantly larger distance from someone wearing a face mask than from an unmasked person. According to an additional survey experiment (N=456), masked individuals are not perceived as being more infectious than unmasked ones, but they are believed to prefer more distancing. This result suggests that, in times where mask use is voluntary, wearing a mask serves as a social signal for a preferred greater distance that is respected by others. Our findings provide strong evidence against the claim that mask use creates a false sense of security that would negatively affect physical distancing.

Keywords:

COVID-19; health policy; compliance; face masks; risk compensation; field experiment;

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Discussion Paper No. 239

Starke Erwartungsreaktionen auf Angela Merkels Covid-Erklärungen

Author:

Peter Haan (DIW Berlin)
Andreas Peichl (LMU Munich, ifo Institute)
Annekatrin Schrenker (DIW Berlin)
Georg Weizsäcker (HU Berlin)
Joachim Winter (LMU Munich)

Abstract:

Wir führen hochfrequente Befragungen der in Deutschland lebenden Personen durch und erheben die Erwartungen zur Dauer der Covid-bedingten Beschränkungen des öffentlichen Lebens. In einer ersten Analyse der Daten finden wir Hinweise, dass zwei in den Erhebungszeitraum fallenden öffentlichen Auftritte von Bundeskanzlerin Angela Merkel die Erwartungen stark beeinflussen. Insbesondere messen wir nach Merkels Pressekonferenz vom 15.4.2020 eine deutlich pessimistische Bewegung der Erwartungen und die beabsichtigten Konsumausgaben der Haushalte sinken zeitgleich. Die Ergebnisse legen nahe, dass die deutsche Politik über die Möglichkeit eines sehr wirksamen Erwartungsmanagements verfügt.

Keywords:

ökonomische Erwartungen; Covid-Shutdown;

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Discussion Paper No. 237

Second-Chance Offers and Buyer Reputation: Theory and Evidence on Auctions with Default

Author:

Dirk Engelmann (HU Berlin)
Jeff Frank (Royal Holloway, University of London)
Alexander K. Koch (Aarhus University)
Marieta Valente (University of Minho)

Abstract:

Winners in online auctions frequently fail to complete purchases. Major auction platforms therefore allow “second-chance” offers, where the runner-up bidder pays his own bid price, and they let sellers leave negative feedback on buyers who default. We show theoretically that (i) all else equal, the availability of second-chance offers reduces bids; (ii) sellers have no incentive to exclude bidders, even if they are nearly certain to default; (iii) buyer reputation systems reward bidders with a reputation for defaulting, counter to the idea of deterring such behavior. Our auction experiments support these predictions and provide insights on their practical relevance.

Keywords:

auctions; default; reputation; second-chance offers;

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Discussion Paper No. 236

Politically Feasible Reforms of Non-Linear Tax System

Author:

Felix J. Bierbrauer (University of Cologne)
Pierre C. Boyer (École Polytechnique)
Andreas Peichl (LMU Munich, ifo Institute)

Abstract:

We study reforms of non-linear income tax systems from a political economy perspective. We present a median voter theorem for monotonic tax reforms, reforms so that the change in the tax burden is a monotonic function of income. We also provide an empirical analysis of tax reforms, with a focus on the US. We show that past reforms have, by and large, been monotonic. We also show that support by the median voter was aligned with majority support in the population. Finally, we develop sufficient statistics that enable to test whether a given tax system admits a politically feasible reform.

Keywords:

non-linear income taxation; tax reforms; political economy; optimal taxation;

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Discussion Paper No. 235

Inducing Cooperation with Emotion - Who Is Affected?

Author:

Manja Gärtner (DIW Berlin)
Gustav Tinghög (Linköping University)
Daniel Västfjäll (Linköping University)

Abstract:

We study the effects of dual processing differences that arise from the state level (through experimental manipulation of the decision mode), the trait level (using individual difference measures of the decision mode), and their interaction on cooperative behavior. In a survey experiment with a representative sample of the Swedish population (N = 1,828), we elicited the individuals’ primary decision mode and experimentally varied whether individuals could rely on their preferred mode or were induced to rely either on emotion or reason. Cooperation was measured across a series of commonly used and incentivized games (prisoner’s dilemma game, public goods game, trust game, dictator game). At the state level, our results show that average cooperation rates increased when emotions were induced rather than reason. At the trait level, our results show that individual decision modes and cooperation rates were not correlated when subjects could rely on their primary mode, but traits interacted with our processing manipulation: Experimentally inducing emotions increased cooperation among individuals who otherwise rely primarily on reason, but not among individuals who already rely primarily on emotion. These findings suggest that individuals integrate their traits with emotion-based states by substituting their trait rather than enhancing it. Thus, who is affected by emotions in their decision to cooperate crucially depends on state-trait interactions at the point of decision.

Keywords:

cooperation; intuition; emotion; reason; experiment;

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Discussion Paper No. 234

Do Legal Standards Affect Ethical Concerns of Consumers?

Author:

David Danz (University of Pittsburgh, WZB Berlin)
Dirk Engelmann (HU Berlin)
Dorothea Kübler (WZB Berlin, TU Berlin)

Abstract:

To address the impact of regulation on ethical concerns of consumers, we study the example of minimum wages. In our experimental market, consumers have monopsony power, firms set prices and wages, and workers are passive recipients of a wage payment. We find that the majority of consumers occasionally deviate from their self-interest and that markets with such consumers exhibit substantially higher wages. Consumers implement fair allocations using two distinct strategies: they split their demand equally between firms, or they buy all units from the firm with the higher price and higher wage. The two strategies can be captured by maximin preferences and indirect reciprocity in Charness and Rabin’s (2002) reciprocal fairness model. Introducing a minimum wage in a market raises average wages despite its significant crowding out effects on consumers’ fairness concerns. Abolishing a minimum wage crowds in consumer fairness concerns, but crowding in is not sufficient to avoid overall negative effects on workers’ wages.

Keywords:

fairness; consumer behavior; minimum wage; crowding out; experimental economics;

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Discussion Paper No. 232

Measuring Unfair Inequality: Reconciling Equality of Opportunity and Freedom from Poverty

Author:

Paul Hufe (LMU Munich, ifo Institute)
Ravi Kanbur (Cornell University)
Andreas Peichl (LMU Munich, ifo Institute)

Abstract:

Empirical evidence on distributional preferences shows that people do not judge inequality as problematic per se but that they take the underlying sources of income differences into account. In contrast to this evidence, current measures of inequality do not adequately reflect these normative preferences. In this paper we address this shortcoming by developing a new measure of unfair inequality that reconciles two widely-held fairness principles: equality of opportunity and freedom from poverty. We provide two empirical applications of our measure. First, we analyze the development of inequality in the US from 1969 to 2014 from a normative perspective. Second, we conduct a corresponding international comparison between the US and 31 European countries in 2010. Our results document increasing unfairness in the US over time. This trend is driven by a strong decrease in social mobility that puts the “land of opportunity” among the most unfair countries in 2010.

Keywords:

inequality; equality of opportunity; poverty; fairness; measurement;

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Discussion Paper No. 225

Optimal Need-Based Financial Aid

Author:

Mark Colas (University of Oregon)
Sebastian Findeisen (University of Konstanz)
Dominik Sachs (LMU Munich)

Abstract:

We study the optimal design of student financial aid as a function of parental income. We derive optimal financial aid formulas in a general model. For a simple model version, we derive mild conditions on primitives under which poorer students receive more aid even without distributional concerns. We quantitatively extend this result to an empirical model of selection into college for the United States that comprises multidimensional heterogeneity, endogenous parental transfers, dropout, labor supply in college, and uncertain returns. Optimal financial aid is strongly declining in parental income even without distributional concerns. Equity and efficiency go hand in hand.

Keywords:

financial aid; college subsidies; optimal taxation; inequality;

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