G-MonD Note n°18

Income Hiding and Informal Redistribution: A Lab in the Field Experiment in Senegal

Authors: Marie Boltz, Karine Marazyan and Paola Villar
Abstract :

In a context where people heavily rely on their social networks and have limited access to financial markets, redistributive obligations can lead to hidden costs. In this project we estimate these costs by relying on an original lab-in-the-field experiment conducted in Senegal which has the unique feature of combining a small scale randomized controlled trial (RCT) and a lab experiment. The lab component allows us to estimate the cost of the informal redistribution taking place in the community, through the elicitation of the willingness-to-pay to hide income and to identify the relevant population: two thirds of the experiment participants are ready to forgo up to 14% of their gains to keep them private. Based on the RCT component, we find that giving the opportunity to hide their income to people fearing the redistributive pressure allows them to decrease by 27% the share of the gains they devote to transfers to kin out of the lab. They reallocate this extra money to health and personal expenses. This is the first paper to both identify the individual cost of this informal redistribution and to relate it to real-life resource allocation decisions, in a controlled setting.

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