Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation

68 Pages Posted: 6 Dec 2016  

Rafael Di Tella

Harvard Business School - Business, Government and the International Economy Unit; National Bureau of Economic Research (NBER)

Juan Dubra

University of Montevideo - Department of Economics

Alejandro Lagomarsino

Harvard University

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Date Written: December 6, 2016

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.

Keywords: Business Legitimacy, State Capacity, Meetings, Taxes, Top 1%, Regulation.

Suggested Citation

Di Tella, Rafael and Dubra, Juan and Lagomarsino, Alejandro, Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation (December 6, 2016). Harvard Business School BGIE Unit Working Paper No. 17-046. Available at SSRN: https://ssrn.com/abstract=2881496

Rafael Di Tella (Contact Author)

Harvard Business School - Business, Government and the International Economy Unit ( email )

Cambridge, MA
United States
617-495-5048 (Phone)
617-496-5985 (Fax)

HOME PAGE: http://www.people.hbs.edu/rditella/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Juan Dubra

University of Montevideo - Department of Economics ( email )

Prudencio de Pena 2440
Montevideo, CP 11600
Uruguay
5982 707 4461 (Phone)

HOME PAGE: http:\\www2.um.edu.uy\dubraj

Alejandro Lagomarsino

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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