Elite capture of democratic politics: the role of social identity

In the present paper we uncover a novel mechanism through which a minority can gain a disproportionate power in a perfectly functioning democracy. In our model, a government elected by majority within a two party democracy, decides on a unique redistributive instrument, the tax rate. We show that a minority characterised by a high degree of social identification may, in the presence of ideological motives, influence the policy outcome. In particular, a rise in social identification among the rich minority may be able to reduce the tax rate. Importantly, this may happen even if the minority is more ideological than the majority. Finally, we attempt an explanation of the divide in the tax rate between the US and Europe.