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Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation

Author

Listed:
  • 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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    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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