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    Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation
    03 Jan 2017Working Paper Summaries

    Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation

    by Rafael Di Tella, Juan Dubra, and Alejandro Lagomarsino
    What role do people’s beliefs about the rich play in the determination of public policy? This study focuses on three policy domains: public-private sector meetings (assumed to be an important determinant of state capacity), demand for taxation of the top 1 percent, and business regulation. Results overall suggest that trust in business and government operate differently in people’s mind. While business legitimacy leads to a lower demand for regulation, this is not so clear-cut for trust in government.
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    Author 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 for 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.


    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: December 2016
    • HBS Working Paper Number: HBS Working Paper #17-046
    • Faculty Unit(s): Business, Government and International Economy
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    Rafael M. Di Tella
    Rafael M. Di Tella
    William Ziegler Professor of Business Administration
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