An allegory of the political influence of the top 1%

De Donder, Philippe and Roemer, John E. (2016) An allegory of the political influence of the top 1%. Business and Politics, 18. pp. 85-96.

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

Item Type: Article
Language: English
Date: April 2016
Refereed: Yes
Uncontrolled Keywords: kantian equilibrium, lobbying, political economy and regulatory capture
JEL codes: D72 - Economic Models of Political Processes - Rent-Seeking, Elections, Legislatures, and Voting Behavior
H31 - Household
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 06 Oct 2016 07:54
Last Modified: 07 Mar 2018 13:23

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