Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation

Abstract

We analyze the role of people's beliefs about the rich in the determination of public policy in the context of a randomized online survey experiment. A question we study is the desirability of government-private sector meetings, a variable we argue is connected to State capacity. Survey respondents primed with negative views about business leaders want fewer meetings, as well as higher taxes to the top 1% and more regulation. We also study how these effects change when subjects are (additionally) primed with positive/negative views about government officials. Distrust in the government increases the preferred tax rate on the top 1% only when business legitimacy is low. A model with multiple equilibria helps interpret these findings. In one of the equilibria, meetings are allowed, business legitimacy is high, and people set a low income tax rate for businesspeople. In the other, meetings are forbidden, business legitimacy is low, and people set high taxes to punish the businesspeople for their corrupt behavior.

Preferences for Redistribution in Latin America

“…However, they didn't change their preferences about specific forms of taxation or redistribution through social spending. This aligns with the findings of studies by Grimalda andPipke (2021) andDi Tella et al (2016). The latter research suggests that a decrease in trust in wealthy elites leads to greater support for taxation on the wealthy, driven more by a desire for retribution than by a desire for redistribution.…”

“…Nonetheless, perceptions of corruption, paired with low trust in the government and the private sector, may push people to agree with taxing the rich (i.e. corporate and estate taxes) not for redistributive purposes but out of a desire to punish those whose wealth might be perceived as undeserved (Hirschman and Rothschild, 1973;Di Tella et al, 2016;Hauk et al, 2022).…”

'Ask not what your country can do for you': Legacies of the Great Recession and the consequences of the 'trust crisis'

“…Alesina et al (2018) discuss how Republican voters in the USA with low trust in the government believe that the government should have no role in mitigating falling intergenerational mobility. Dubra et al (2019) document similar results: distrust in government in the USA is inversely related to preferences for redistribution because individuals with low trust in government institutions believe that the government should have a limited role in providing redistributive policies. In a similar vein, our results show that institutional mistrust generated by the Great Recession translated into above-average reductions in mobility plausibly because people may have decided to protect themselves when faced with perceived breakdowns in the social contract and lack of trust that governments would protect them.…”

“…1 These dimensions of trust are often interlinked but may not always move in the same direction. For instance, Dubra et al (2019) show in a randomized controlled setting that distrust in government is inversely related to preferences for redistribution. Similar results are discussed by Alesina et al (2018) and Kuziemko et al (2015) for the USA.…”