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.

How Much Does Your Boss Make? The Effects of Salary Comparisons

“…23 Employees may find it easier to justify vertical inequality because, for instance, they may think that managers deserve higher salaries because they add more value to the firm or because they worked hard to get to that position. Indeed, this interpretation echoes a robust finding in the literature about preferences for redistribution that some poor people do not want to tax the rich because they think the rich are deserving of their wealth (Di Tella et al, 2016).…”

Perceptions of Inherited Wealth and the Support for Inheritance Taxation

“…Furthermore, Di Tella et al . (2016) show how attitudes towards business elites influence people's attitudes towards progressive taxation.…”

Beliefs about Behavioral Responses to Taxation

“…By investigating the roles of beliefs about behavioral responses to taxation and equality-e iciency preferences in forming a itudes towards redistribution, our results contribute to a rich literature on the determinants of people's redistributive preferences (Alesina and Angeletos, 2005;Bénabou and Ok, 2001;Bénabou and Tirole, 2006;Kuziemko, Norton, Saez, and Stantcheva, 2015;Meltzer and Richard, 1981;Persson and Tabellini, 2000;Pike y, 1995). In particular, we relate to studies showing that people's fairness preferences may be instrumental in forming their views on redistributive policies (Alesina and Angeletos, 2005;Almås et al, 2016;Bénabou and Tirole, 2006;Di Tella, Dubra, and Lagomarsino, 2017). More broadly, our results relate to the literature on social preferences and what motivates e ort (Almås et al, 2016;Bolton and Ockenfels, 2000;Charness and Rabin, 2002;DellaVigna and Pope, 2016a,b;Fehr and Schmidt, 1999;Fisman et al, 2015;Kessler and Norton, 2016) and the public finance literature on optimal tax policy and behavioral responses to taxation (Diamond and Saez, 2011;Mankiw, Weinzierl, and Yagan, 2009;Pike y, Saez, and Stantcheva, 2014).…”

“…This is not to say that Democrats and Republicans necessarily have identical beliefs about all aspects relevant for this debate. In particular, beliefs that interact with people's perceptions of fairness-such as trust in business elites-may also be instrumental to understand why voters have conflicting views on redistribution (Di Tella et al, 2017). An avenue for future research may be to further explore the importance of interactions between beliefs and perceptions of fairness in driving demand for redistribution.…”