Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation

Rafael Di Tella, Juan Dubra, Alejandro Luis Lagomarsino

NBER Working Paper No. 22934
Issued in December 2016, Revised in September 2017
NBER Program(s):Political Economy

We study the impact of two dimensions of trust, namely trust in business elites and trust in government, on policy preferences. 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 more trust causes a decline in desired taxes. This is particularly strong for our treatment decreasing trust in business elites, which causes an increase in desired taxes on the top 1% of 1.2 percentage points. The effect closes 14% of the gap in tax preferences between Democrats and Republicans, and is double that amount when trust in government is low. Similarly, more distrust leads to more desired regulation and less private-public sector meetings, a variable we argue is connected to State capacity. A model where people tax to punish corrupt business leaders (rather than to redistribute income) helps interpret these findings.

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Document Object Identifier (DOI): 10.3386/w22934

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