The Social Tax: Redistributive Pressure and Labor Supply
In low-income communities, pressure to share income with others may disincentivize work, distorting labor supply. We document that across countries, social groups that undertake more interpersonal transfers work fewer hours. Using a field experiment, we enable piece-rate factory workers in Côte d’Ivoire to shield income using blocked savings accounts over 3-9 months. Workers may only deposit earnings increases, relative to baseline, mitigating income effects on labor supply. We vary whether the offered account is private or known to the worker’s network, altering the likelihood of transfer requests against saved income. When accounts are private, take-up is substantively higher (60% vs. 14%). Offering private accounts sharply increases labor supply—raising work attendance by 10% and earnings by 11%. Outgoing transfers do not decline, indicating no loss in redistribution. Our estimates imply a 9-14% social tax rate. The welfare benefits of informal redistribution may come at a cost, depressing labor supply and productivity.
This paper greatly benefited from comments by Michael Best, François Gerard, Jessica Goldberg, Pamela Jakiela, Sylvie Lambert, Guilherme Lichand, Karen Macours, Owen Ozier, Léa Rouanet, Golvine de Rochambeau, Simone Schaner, Krzysztof Zaremba, and various seminar participants. Julia Buzan, Oumar Koné, Tiphaine Forzy, Chris Tullis, Ambika Sharma, Prathyush Parasuraman, Shelby Carvalho and Cécile Delcuvellerie provided superb research assistance. We gratefully acknowledge financial support from the World Bank’s Umbrella Facility for Gender Equality, the World Bank’s Jobs Umbrella Multidonor Trust Fund, and the National Science Foundation (Kaur’s CAREER award SES 1848452). We thank Innovations for Policy Action (IPA), especially Nicolò Tomaselli, Henriette Hanicotte, Samuel Kembou Nzalé, Mireille Nuguhe Gbagbo and Augustin Kouadio for assistance with implementation. This project is a product of the World Bank’s Africa Gender Innovation Lab and Jobs Group. The findings, interpretations, and conclusions expressed in this paper do not necessarily represent the views of the World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Research approved by IPA IRB. AEA RCT Registry ID: AEARCTR-0003821. All errors and omissions are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.