Redistribution, growth, and inequality: Insights from experimental dynamic public good games

Abstract

This paper investigates the interplay between income inequality, growth, and redistribution in a dynamic public good game. Redistribution, as expected, leads to lower inequality but it does not necessarily reduce growth. Especially in settings characterized by high initial inequality, a high tax rate can produce similar wealth levels as without taxation while reducing inequality. On average, we find that people tend to favor more redistribution over time, but there is substantial heterogeneity in this trend. We also find that individuals who are more favourable to redistribution contribute more to the public good.