Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation

We study the impact of two dimensions of trust, namely trust in business elites and trust in government, on policy preferences. Using a randomized online survey, we find that our two treatments are effective in changing trust... [ view full abstract ]

We study the impact of two dimensions of trust, namely trust in business elites and trust in government, on policy preferences. Using a randomized online survey, we find that our two treatments are effective in changing trust in Major Companies and in Courts/Government. In contrast to previous work, we find that distrust causes a decline in desired taxes. For example, our treatment decreasing trust in business elites causes an increase in desired taxes on the top 1% of 1.2 percentage points (it closes 14% of the Democrat-Republican gap in tax preferences), and is double that amount when trust in government is low. Similarly, more distrust leads to more desired regulation and less private-public sector meetings, a variable we argue is connected to State capacity. A model where people tax to punish corrupt business leaders (rather than to redistribute income) helps interpret these findings.