PROJECT

THE POOR TAX: SOCIAL SHARING NORMS AND LABOR SUPPLY IN IVORY COAST

Researcher: Florian Grosset, PhD Student in Sustainable Development, with Surpreet Kaur, Aletheia Donald, and Eliana Carranza

In places with limited formal institutions, social and family networks play an important role in people’s lives, with relatives, friends, colleagues, and neighbors sharing financial resources. Moreover, individuals who take up more stable and higher wage employment face increased pressure to redistribute income to their social networks. While this can act as effective informal insurance and redistribution mechanisms in contexts where formal financial and governmental institutions remain limited, it can also hinder workers’ efforts to save and invest. Feeling obliged to redistribute most of the income they may have wanted to save, they may be less motivated to earn money and/or may exert less effort in their work. If pressures to share resources have negative effects on workers and their productivity, then social safety nets may help improve both output and savings. 

To investigate this possibility, the researchers will propose a financial product to workers in the formal agro-processing sector in Ivory Coast. This illiquid and private savings account has been specifically designed to allow the workers to shield part of their earnings from redistributive pressures (hence allowing them to save and later invest) without destroying the existing norms and redistributive relationships. Using a randomized control trial, the research plan is to evaluate the impact of this intervention with a particular attention to the effects on the workers’ labor supply.