Justice, Incentives, and Heterogeneous Needs

• Applicant: Professor Dr. Andreas Nicklisch
• Subject Area: Economic Policy, Applied Economics ; Political Science
• Term: from 2014 to 2021
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 240285356

Redistribution is one of the core functions of the majority of modern states. Yet, redistribution does not come without costs for a society: redistribution distorts incentives to work, and advances incentives to spend time on leisure activities. Economists denote resulting reductions in productivity as the implicit costs of redistribution. Subproject D1 "Justice, Incentives, and Heterogeneous Needs" analyzes theoretically and experimentally the implicit costs of redistribution based on need-based justice. For this purpose, we develop experimental designs allowing us to measure the effect of income taxation and transfers on productivity. The results from our first funding period show little evidence for implicit costs of redistribution, but higher productivity when transfer recipients are not personally responsible for their need. When we vary the meaningfulness of taxation such that tax revenues finance transfers to less needy recipients or if they are wasted altogether, the productivity surplus decreases. The second funding period examines the effect of differentiations of transfers for needs with heterogeneous origins (i.e. they are heterogeneously caused by either personal responsibility or exogenously imposed restrictions). We examine resulting implicit costs of redistribution for different transparency levels of personal responsibility. We compare the cost effect of differentiation with the effect of policy instruments supporting the indirect reciprocal ties between transfer payer and transfer recipients. Finally, we develop a general framework for the interplay between indirect reciprocity, differentiation of needs, limited transparency of personal responsibility and implicit costs of need-based redistribution.

• DFG Programme: Research Units
• Subproject of: FOR 2104: Needs-Based Justice and Distribution Procedures
• International Connection: Switzerland
• Partner Organisation: Schweizerischer Nationalfonds (SNF)
• Co-Investigator: Professor Dr. Frank Nullmeier