Self-reliance and the provision of a tax financed good. An experimental approach

Last registered on June 24, 2024

Pre-Trial

Trial Information

General Information

Title
Self-reliance and the provision of a tax financed good. An experimental approach
RCT ID
AEARCTR-0013831
Initial registration date
June 18, 2024

Initial registration date is when the trial was registered.

It corresponds to when the registration was submitted to the Registry to be reviewed for publication.

First published
June 24, 2024, 2:10 PM EDT

First published corresponds to when the trial was first made public on the Registry after being reviewed.

Locations

Region

Primary Investigator

Affiliation

Other Primary Investigator(s)

PI Affiliation
PI Affiliation

Additional Trial Information

Status
In development
Start date
2024-06-19
End date
2024-06-26
Secondary IDs
Prior work
This trial does not extend or rely on any prior RCTs.
Abstract
This project studies the willingness to pay taxes to finance a public good when one has the possibility of being self-reliant, that is, being able to satisfy a shared need such as education, health care or security individually through the consumption of a private substitute good. In this setting, we would have a private-public goods game in a context where participants use their political voice (vote for the tax rate) and can have an exit strategy (private substitute). We hypothesize that the introduction of a private good may generate obstacles to the financing of the public good, decreasing the willingness to pay taxes for those who have individual incentives to opt for the private good.
We compare treatments where the endowments are homogeneous with those where participants receive a high, a medium and a low endowment. In both scenarios, we want to study how the decrease in the cost of being self-reliant, understood as the decrease in the price of the private good, changes the willingness of participants to pay taxes. In the specific case of heterogeneous endowment, we study how an unequal distribution of income affects the decision of participants regarding the tax rate to vote compared to the case of homogeneous endowment. In this scenario, we also analyze the effect on inequality, as the private good benefits some participants more than others, given the different levels of endowment.
External Link(s)

Registration Citation

Citation
Koch, Juliane, Andreas Lange and Felipe Molina. 2024. "Self-reliance and the provision of a tax financed good. An experimental approach." AEA RCT Registry. June 24. https://doi.org/10.1257/rct.13831-1.0
Experimental Details

Interventions

Intervention(s)
Intervention (Hidden)
Intervention Start Date
2024-06-19
Intervention End Date
2024-06-26

Primary Outcomes

Primary Outcomes (end points)
We investigate the treatment effects on tax rate preference and public or private good choice.

First, we test the effect generated by a lower cost of being self-reliant (private good price is lower).

Hypothesis 1 (H1): when the price of the private good is lower (plow), the tax rate selected by the group (t) falls and the private good is preferred by all group participants.

To test H1, we compare participants' responses when the price is higher (phigh) with the responses when the price is lower (plow). This, both in the scenario where there are homogeneous endowments and, in the scenario, where there are heterogeneous endowments (high-income, middle-income, low-income).

Second, we test the effect of introducing inequality (heterogeneous endowments).

H2: the introduction of inequality does not affect the preferences of the pivot voter (median-income).

To test H2, we compare the behavior of participants in the homogeneous endowment scenario (endowment equal to the middle-income of the heterogeneous endowment scenario) with the behavior of the middle-income participants in the heterogeneous endowment scenario.

H3: inequality increases when the price of the private good falls in the heterogeneous endowment scenario.

To test H3, we compare the Gini index from the payoffs of the different types of participants (high-income, middle-income, low-income) when the price is phigh and when the price is plow.
Primary Outcomes (explanation)

Secondary Outcomes

Secondary Outcomes (end points)
Control variables from a short questionnaire at the end of the experiment: Demographics: Sex, age, field of study, schooling background (whether private or public school).

Social preferences: prosocial behavior, preferences and beliefs about public goods.
Secondary Outcomes (explanation)

Experimental Design

Experimental Design
This experiment will be conducted by the experimental laboratory of the University of Hamburg (Germany) in an online setting. The participants will be assigned to groups of three players who interact in a private-public goods game. They will use their endowment to choose between a public option available to all or a private option available only to those who pay. The quality and, therefore, the return rate on investment of the public option increases with the tax rate. On the other hand, the quality and, therefore, the return rate on investment of the private substitute is constant and equal to the optimal return of the public option. This optimal return occurs when participants vote for the tax rate greater than zero that maximizes their payoff. This means that the quality of the public good can be at most as good as the private substitute.

The experiment is divided into two phases. In each phase participants face a different price of the private good (p) depending on the treatment. In one type of treatment, they face first phigh and then plow. In the other type of treatment, they face first plow and then phigh. Participant’s task for each phase is divided in two steps:

1. They will vote for the tax rate (ti) of their preference for funding the public option from a list of 6 different options. For each tax rate, participants know the endowments and expected payoffs for themselves and the other members of the group. They choose the tax rate simultaneously. At the moment of their decision, they do not know which tax rate was chosen by the other two players. The tax rate selected (t) will be the median of the rates voted by the three participants in the group. Everybody in the group will be charged this tax rate. This rate is multiplied by the endowment to determine the tax value for each participant (yi*t).

2. They will decide whether they choose the public or the private option for each of the possible tax rates (strategy method). For this decision they also have full information on the endowments and expected payoffs for themselves and the other participants.

Then, they will answer a survey. Finally, the votes of the 3 participants in each group are computed to designate the tax rate to be used for the calculation of each participant's payoff. For the calculation of the payoff, one of the two phases of the experiment will be used randomly. That is, the payoff result when phigh or the payoff result when plow.

In treatment 1, participants have the same endowment and face first phigh (p being high enough that the payoff of the private option is not sufficiently attractive to vote t=0). Then participants face plow (p being low enough that payoff of the private option is sufficiently attractive to vote t=0). In treatment 2, the procedure is the same, the only element that changes is that participants first face plow and then phigh.

For treatments 3 and 4 heterogeneous endowments are introduced yet keeping the same procedure. One of the participants is a high-income, one a middle-income and one a low-income player. In treatment 3, participants face first phigh (p being high enough that only for the high-income participant the payoff of the private option is sufficiently attractive to vote t=0). Then participants face plow (p being low enough that for the high-income and middle-income participants the payoff of the private option is sufficiently attractive to vote t=0). Finally, in treatment 4, participants face first plow and then phigh.
Experimental Design Details
Randomization Method
Randomization into treatments as well as locations and roles within the experiment done by computer.
Randomization Unit
Groups of three.
Was the treatment clustered?
No

Experiment Characteristics

Sample size: planned number of clusters
-
Sample size: planned number of observations
180 observations (4 treatments, each having 15 groups of 3 participants). Thus, 15 independent observations per treatment, in total 60.
Sample size (or number of clusters) by treatment arms
-
Minimum detectable effect size for main outcomes (accounting for sample design and clustering)
IRB

Institutional Review Boards (IRBs)

IRB Name
IRB Approval Date
IRB Approval Number

Post-Trial

Post Trial Information

Study Withdrawal

There is information in this trial unavailable to the public. Use the button below to request access.

Request Information

Intervention

Is the intervention completed?
No
Data Collection Complete
Data Publication

Data Publication

Is public data available?
No

Program Files

Program Files
Reports, Papers & Other Materials

Relevant Paper(s)

Reports & Other Materials