The political Economy of Wealth and Interest
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.
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Volume (Year): 117 (2007)
Issue (Month): 523 (October)
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