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An Allegory of the Political Influence of the Top 1%

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  • Philippe De Donder
  • John E. Roemer

Abstract

We study how rich shareholders can use their economic power to deregulate firms that they own, thus skewing the income distribution towards themselves. Agents differ in productivity and choose how much labor to supply. High productivity agents also own shares in the productive sector and thus earn capital income. All vote over a linear tax rate on (labor and capital) income whose proceeds are redistributed lump sum. Capital owners also lobby in order to ease the price cap imposed on the private firm. We solve analytically for the Kantian equilibrium of this lobbying game together with the majority voting equilibrium over the tax rate, and we perform simulations. We obtain numerically that, as the capital income distribution becomes more concentrated among the top productivity individuals, their increased lobbying effort generates efficiency as well as equity costs, with lower labor supply and lower average utility levels in society.

Suggested Citation

  • Philippe De Donder & John E. Roemer, 2013. "An Allegory of the Political Influence of the Top 1%," CESifo Working Paper Series 4478, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_4478
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp4478.pdf
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    References listed on IDEAS

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    1. repec:kap:jecinq:v:15:y:2017:i:2:d:10.1007_s10888-016-9346-2 is not listed on IDEAS
    2. Philippe De Donder & John E. Roemer, 2017. "The dynamics of capital accumulation in the US: simulations after piketty," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, pages 121-141.
    3. Facundo Alvaredo & Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2013. "The Top 1 Percent in International and Historical Perspective," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 3-20, Summer.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    political economy; Kantian equilibrium; lobbying; regulatory capture;

    JEL classification:

    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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