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Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation

Author

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  • Juan Dubra
  • Rafael Di Tella
  • Alejandro Lagomarsino

Abstract

We study the impact of two dimensions of trust, namely trust in business elites and trust in government, on preferences for taxation. 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 distrust causes an increase in desired taxes on the top 1%. For example, our treatment decreasing trust in business elites causes an increase in desired taxes on the top 1% of 2.4 percentage points (it closes 27% of the Democrat-Republican gap in tax preferences) when trust in government is low; a similar result is obtained for distrust in government. We also find that trust is a key driver of these preferences: 52% of the Democrat-Republican gap in tax preferences can be explained by differences in trust. With respect to proxies for regulation and state capacity, we find a negative effect of trust in business elites (and an unclear effect of trust in government). A model based on Rotemberg (2008), where people tax to punish corrupt business leaders rather than to redistribute income, helps interpret these findings.

Suggested Citation

  • Juan Dubra & Rafael Di Tella & Alejandro Lagomarsino, 2019. "Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation," Documentos de Trabajo/Working Papers 1902, Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo..
    • Handle: RePEc:mnt:wpaper:1902
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    2. Spencer Bastani & Daniel Waldenström, 2021. "Perceptions of Inherited Wealth and the Support for Inheritance Taxation," Economica, London School of Economics and Political Science, vol. 88(350), pages 532-569, April.
    3. Busso, Matias & Ibáñez, Ana María & Messina, Julián & Quigua, Juliana, 2023. "Preferences for redistribution in Latin America," LSE Research Online Documents on Economics 120687, London School of Economics and Political Science, LSE Library.
    4. Begoña Cabeza; & Shaun Da Costa;, 2023. "Taxation for development: the impact of the Ebola epidemic on citizen support across Western Africa," Working Papers 2307, Herman Deleeck Centre for Social Policy, University of Antwerp.
    5. Colombe Ladreit, 2022. "Automation and Public Policy Preferences," BAFFI CAREFIN Working Papers 22191, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    6. Grimalda, Gianluca & Pipke, David, 2021. "Cross-country evidence on the determinants of preferences for redistribution," Kiel Working Papers 2190, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    Business Legitimacy; Taxes; Top 1%; Regulation; State Capacity; Trust.;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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