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Mental Accounting of Public Funds – The Flypaper Effect in the Lab
1 : University of Muenster
* : Corresponding author
This paper reports evidence from a laboratory experiment that focusses on mental accounting of 'public funds'. Groups of three players decide upon how much to redistribute within the group. We find that the inclination to redistribute is significantly higher if it is financed out of a common budget. Since the common budget is otherwise used for the players' private consumption, its relative size should not affect the decision to redistribute. We interpret this finding as evidence for a flypaper effect due to mental accounting and discuss implications for tax policy and government spending.
