Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation

54 Pages Posted: 19 Dec 2016

See all articles by Rafael Di Tella

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

Multiple version iconThere are 2 versions of this paper

Date Written: December 2016

Abstract

We study the impact of two dimensions of trust, namely trust in business elites and trust in government, on policy preferences. Using a randomized online survey, we find that our two treatments are effective in changing trust in Major Companies and in Courts/Government. In contrast to previous work, we find that more trust causes a decline in desired taxes. This is particularly strong for our treatment decreasing trust in business elites, which causes an increase in desired taxes on the top 1% of 1.2 percentage points. The effect closes 14% of the gap in tax preferences between Democrats and Republicans, and is double that amount when trust in government is low. Similarly, more distrust leads to more desired regulation and less private-public sector meetings, a variable we argue is connected to State capacity. A model where people tax to punish corrupt business leaders (rather than to redistribute income) helps interpret these findings.

Suggested Citation

Di Tella, Rafael and Dubra, Juan and Lagomarsino, Alejandro, Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation (December 2016). NBER Working Paper No. w22934. Available at SSRN: https://ssrn.com/abstract=2887196

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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