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Capital Redistribution and the Market Allocation of Firm-Ownership

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  • Grüner, Hans Peter
  • Schils, Ruediger
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    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.

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    Bibliographic Info

    Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3130.

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    Date of creation: Jan 2002
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    Handle: RePEc:cpr:ceprdp:3130

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    Related research

    Keywords: firm-ownership; inequality; moral hazard; redistibutive taxation;

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    Cited by:
    1. Grüner, Hans Peter, 2003. "Inequality and Political Consensus," CEPR Discussion Papers 4159, C.E.P.R. Discussion Papers.

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