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An allegory of the political influence of the top 1%

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  • De Donder Philippe

    (Toulouse School of Economics (GREMAQ-CNRS and IDEI), 21 allee de Brienne, 31015 Toulouse Cedex 6, France, Phone: (+33) 5 61 12 86 30)

  • Roemer John E.

    (Yale University, PO Box 208301, New Haven, CT 06520, USA)

Abstract

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

Suggested Citation

  • De Donder Philippe & Roemer John E., 2016. "An allegory of the political influence of the top 1%," Business and Politics, De Gruyter, vol. 18(1), pages 85-96, April.
    • Handle: RePEc:bpj:buspol:v:18:y:2016:i:1:p:85-96:n:4
    DOI: 10.1515/bap-2015-0017
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    References listed on IDEAS

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    1. Philippe De Donder & John E. Roemer, 2017. "The dynamics of capital accumulation in the US: simulations after piketty," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 15(2), pages 121-141, June.
    2. Roemer John E, 2006. "Party Competition under Private and Public Financing: A Comparison of Institutions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-33, April.
    3. Facundo Alvaredo & Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2013. "The Top 1 Percent in International and Historical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 3-20, Summer.
    4. Michael J. P. Magill & Martine Quinzii & Jean-Charles Rochet, 2013. "A Critique of Shareholder Value Maximization," Swiss Finance Institute Research Paper Series 13-16, Swiss Finance Institute.
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    Cited by:

    1. Philippe De Donder & John E. Roemer, 2017. "The dynamics of capital accumulation in the US: simulations after piketty," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 15(2), pages 121-141, June.
    2. Alberto Grillo, 2020. "Ethical Voting in Heterogenous Groups," AMSE Working Papers 2034, Aix-Marseille School of Economics, France, revised Apr 2021.
    3. Bezin, Emeline & Ponthière, Gregory, 2019. "The tragedy of the commons and socialization: Theory and policy," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    4. Alberto Grillo, 2020. "Ethical Voting in Heterogenous Groups," Working Papers halshs-02962464, HAL.
    5. Friederike Schuchardt, 2018. "Ökonomische Ungleichheit und Verteilungsgerechtigkeit," Wirtschaft und Gesellschaft - WuG, Kammer für Arbeiter und Angestellte für Wien, Abteilung Wirtschaftswissenschaft und Statistik, vol. 44(3), pages 405-423.

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    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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