Income Redistribution and Public Good Provision: an Experiment

We provide a new experimental investigation of the neutrality theorem of Warr (1983), who states ”when a single public good is provided at positive levels by private individuals, its provision is unaffected by a redistribution of income”. Instead of comparing different income distributions across groups as Chan et al. (1996), in our experiment the total group endowment is redistributed after a 10 rounds sequence. We compare an unequalizing redistribution (EI) and an equalizing redistribution (IE), to two benchmark treatments for which the 10 rounds sequence is repeated, either with an equal distribution (EE) or an unequal distribution (II). The constituent game has a unique interior dominant strategy equilibrium. Our data support the neutrality theorem (after controlling for the restart effect): redistribution has no effect on the total amount of public good in none of the tested treatments. However, the analysis of individual behavior shows that ”poor” subjects over-contribute with respect to their Nash-contribution, while ”rich” subjects tend to play their Nash-contribution or under-contribute slightly. Furthermore, after a redistribution, subjects react asymetrically: subjects who get poorer reduce their contribution of a larger amount than the amount of contribution added by subjects who become richer. And it is shown that the latter do not react enough to the redistribution.