An Allegory of the Political Influence of the Top 1%

14 Pages Posted: 26 Nov 2013

See all articles by Philippe De Donder

Philippe De Donder

CNRS, Toulouse School of Economics

John E. Roemer

Yale University - Department of Political Science; Yale University - Cowles Foundation

Multiple version iconThere are 2 versions of this paper

Date Written: November 25, 2013

Abstract

We study how rich shareholders can use their economic power to deregulate firms that they own, thus skewing the income distribution towards themselves. Agents differ in productivity and choose how much labor to supply. High productivity agents also own shares in the productive sector and thus earn capital income. All vote over a linear tax rate on (labor and capital) income whose proceeds are redistributed lump sum. Capital owners also lobby in order to ease the price cap imposed on the private firm. We solve analytically for the Kantian equilibrium of this lobbying game together with the majority voting equilibrium over the tax rate, and we perform simulations. We obtain numerically that, as the capital income distribution becomes more concentrated among the top productivity individuals, their increased lobbying effort generates efficiency as well as equity costs, with lower labor supply and lower average utility levels in society.

Keywords: political economy, Kantian equilibrium, lobbying, regulatory capture

JEL Classification: D710, H310

Suggested Citation

De Donder, Philippe and Roemer, John E., An Allegory of the Political Influence of the Top 1% (November 25, 2013). CESifo Working Paper Series No. 4478. Available at SSRN: https://ssrn.com/abstract=2359423

Philippe De Donder (Contact Author)

CNRS, Toulouse School of Economics ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

HOME PAGE: http://https://www.tse-fr.eu/people/philippe-de-donder

John E. Roemer

Yale University - Department of Political Science ( email )

Box 208269
New Haven, DC 06520-8269
United States
203-432-5249 (Phone)
203-432-6196 (Fax)

HOME PAGE: http://pantheon.yale.edu/~jer39/

Yale University - Cowles Foundation

Box 208281
New Haven, CT 06520-8281
United States

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