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The political Economy of Wealth and Interest

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  • HansPeter Grüner
  • Rüdiger Schils

Abstract

We study the relationship between wealth redistribution and the allocation of firm-ownership. The economy's wealth distribution affects the equilibrium interest rate and the allocation of entrepreneurial rents when wealth determines agents' ability to borrow. This leads to an 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 if redistribution gives access to entrepreneurial rents. Technology may strongly affect political outcomes. Greater inequality amplifies the interest-rate effect and may lead to less redistribution. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

Suggested Citation

  • HansPeter Grüner & Rüdiger Schils, 2007. "The political Economy of Wealth and Interest," Economic Journal, Royal Economic Society, vol. 117(523), pages 1403-1422, October.
    • Handle: RePEc:ecj:econjl:v:117:y:2007:i:523:p:1403-1422
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    References listed on IDEAS

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    Cited by:

    1. Hans Grüner, 2009. "Inequality and Political Consensus," Theory and Decision, Springer, vol. 67(3), pages 239-265, September.
    2. Hans Peter Grüner & Christoph Siemroth, 2019. "Crowdfunding, Efficiency, and Inequality," Journal of the European Economic Association, European Economic Association, vol. 17(5), pages 1393-1427.
    3. Hans Peter Grüner, 2009. "Kapitalbeteiligung von Mitarbeitern. Eine Bewertung der jüngsten Vorschläge," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 10(2), pages 175-188, May.
    4. Andreas Georgiadis & Alan Manning, 2012. "Spend it like Beckham? Inequality and redistribution in the UK, 1983–2004," Public Choice, Springer, vol. 151(3), pages 537-563, June.
    5. Loukas Karabarbounis, 2011. "One Dollar, One Vote," Economic Journal, Royal Economic Society, vol. 121(553), pages 621-651, June.
    6. Grüner, Hans Peter, 2008. "Capital Markets, Information Aggregation and Inequality: Theory and Experimental Evidence," CEPR Discussion Papers 6750, C.E.P.R. Discussion Papers.
    7. Luna Bellani & Heinrich Ursprung, 2016. "The Political Economy of Redistribution Policy," CESifo Working Paper Series 6189, CESifo.
    8. Markus Brückner & Kerstin Gerling & Hans Grüner, 2010. "Wealth inequality and credit markets: evidence from three industrialized countries," Journal of Economic Growth, Springer, vol. 15(2), pages 155-176, June.
    9. Hodler, Roland, 2008. "Leisure and redistribution," European Journal of Political Economy, Elsevier, vol. 24(2), pages 354-363, June.

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