Category: Religion

The Israeli kibbutzim are surprisingly successful examples of voluntary socialism. Even today about 2% of the Israeli population lives on a kibbutz and they account for a significant share of output; about 4% overall (using data from 2004 from here and here) and much higher in some industries such as agriculture where the kibbutzim account for some 40% of Israeli output.

Nevertheless, the kibbutzim aren’t growing and, under economic and social pressure, many are privatizing in various ways. Most notably, beginning in 1998 many kibbutzim lowered the marginal tax rate from 100% (!) to about the same level as in the rest of Israel, 20-50%. The reduction in taxes meant that for the first time there were large wage differences for members of a kibbutz and, most importantly, there were large potential wage differences for those who increased their productivity.

In How Responsive is Investment in Schooling to Changes in Redistribution Policies and in Returns (free here) Ran Abramitzky and Victor Lavy look at the acquisition of human capital for high school students living on kibbutzim before and after the reduction in taxes (using a dif and dif strategy on early and late adopters). The authors find (from an NBER summary):

…The effects of the reforms were relatively small for students from highly educated families, in contrast to relatively large effects for students from families with lower parental education who had been covered by the pay reform for all of their years in high school. This group’s high school completion rates increased by 4.4 percent, their mean exam score went up by 8.3 points, their qualification rate for the Bagrut diploma increased by 19.6 percent, and the fraction of students with university qualifying scores increased by 16.8 percent….boys were most strongly influenced by the change.

The pay reform produced larger increases in educational outcomes than monetary bonuses for Bagrut diploma qualifying scores, a school choice program that allowed students to choose their high school in seventh grade, or a teacher bonus program that paid teachers of math, English, and Hebrew bonuses when their students did well on the Bagrut.

The authors argue that there are general lessons to be learnt:

Our findings have important implications beyond the Israeli context. First, they shed light on the educational responses that could result from a decrease in the income tax rate, thus are informative on the long-run labor supply responses to tax changes. Second, they shed light on the educational responses expected when the return to education increases. For example, such changes might be occurring in many countries as technology-oriented growth increases the return to skills.

I am less confident that the numerical results can be generalized, although of course the general point that incentives matter is well-taken.

The results, however, raise another issue. The original kibbutz were inspired by a combination of Marxism, socialism and Zionism. In the capitalist kibbutz, there is an opportunity for a new principle. Taxes can be set not according to Marx but according to Rawls and his second principle of justice: inequalities are to be allowed so long as they benefit  the least-advantaged members of the society/kibbutz.

Thus, it would be interesting to know if any of the kibbutz have tried to adjust taxes so as to implement a Rawlsian approach to inequality (if not, perhaps Israeli taxes are already above Rawlsian levels.)