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Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation

Juan Dubra (), Rafael Di Tella and Alejandro Lagomarsino

No 1902, Documentos de Trabajo/Working Papers from Facultad de Ciencias Empresariales y Economia. Universidad de Montevideo.

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.

Keywords: Business Legitimacy; Taxes; Top 1%; Regulation; State Capacity; Trust. (search for similar items in EconPapers)
Date: 2019
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Working Paper: Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation (2016) Downloads
Working Paper: Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation (2016) Downloads
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