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Capital Redistribution and the Market Allocation of Firm-Ownership

Author

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  • Grüner, Hans Peter
  • Schils, Ruediger

Abstract

This Paper studies the relationship between political wealth redistribution and the allocation of firm-ownership when production requires an unobservable input. The economy's wealth distribution affects the equilibrium interest rate and the allocation of entrepreneurial rents because wealth serves as a bonding device and determines agents? ability and willingness to borrow. This leads to unconventional voting behaviour of the politically decisive middle class: the political preferences of middle and upper class voters coincide when redistribution only has an adverse interest-rate effect. Middle class voters vote with the lower class instead if redistribution enables them to get access to entrepreneurial rents. Technological change may in-duce dramatic changes in political outcomes and greater inequality pronounces the interest-rate effect and may lead to less redistribution.

Suggested Citation

  • Grüner, Hans Peter & Schils, Ruediger, 2002. "Capital Redistribution and the Market Allocation of Firm-Ownership," CEPR Discussion Papers 3130, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3130
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    File URL: https://cepr.org/publications/DP3130
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    Cited by:

    1. Grüner, Hans Peter, 2003. "Inequality and Political Consensus," CEPR Discussion Papers 4159, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Inequality; Redistibutive taxation; Firm-ownership; Moral hazard;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D30 - Microeconomics - - Distribution - - - General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • P12 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Enterprises
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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