Capital Redistribution and the Market Allocation of Firm-Ownership

Grüner, Hans Peter and Ruediger Schils

No 3130, CEPR Discussion Papers from Centre for Economic Policy Research

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.

Keywords: Inequality; Redistibutive taxation; Firm-ownership; Moral hazard (search for similar items in EconPapers)
JEL-codes: D24 D30 D72 P12 P16 (search for similar items in EconPapers)
Date: 2002-01
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Citations: View citations in EconPapers (1)

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