Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation

Rafael   Di Tella; Juan  Dubra; Alejandro  Lagomarsino

Working Paper | HBS Working Paper Series | 2016

Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation

by Rafael Di Tella, Juan Dubra and Alejandro Lagomarsino

Abstract

We analyze the role of people’s beliefs about the rich in the determination of public policy in the context of a randomized online survey experiment. A question we study is the desirability of government-private sector meetings, a variable we argue is connected to State capacity. Survey respondents primed with negative views about business leaders want fewer meetings as well as higher taxes for the top 1% and more regulation. We also study how these effects change when subjects are (additionally) primed with positive/negative views about government officials. Distrust in the government increases the preferred tax rate on the top 1% only when business legitimacy is low. A model with multiple equilibria helps interpret these findings. In one of the equilibria, meetings are allowed, business legitimacy is high, and people set a low income tax rate for businesspeople. In the other, meetings are forbidden, business legitimacy is low, and people set high taxes to punish the businesspeople for their corrupt behavior.

Keywords: Business Legitimacy; state capacity; Meetings; taxes; Top 1%; regulation; Prejudice and Bias; Values and Beliefs; Taxation; Business and Government Relations;

Language: English

Format: Print

68 pages

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Citation:

Di Tella, Rafael, Juan Dubra, and Alejandro Lagomarsino. "Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation." Harvard Business School Working Paper, No. 17-046, December 2016.

We study a propaganda campaign sponsored by the government against the main political challenger in the days preceding the 2015 Argentine presidential ballotage. Subjects in the treatment group watched an “ad” initially aired during soccer transmissions that was part of this campaign and were then asked about their political views. Relative to subjects in the control group, their declared preference for the challenger drops by 6.5 percentage points. We find no effects of the three types of defenses employed by the challenger (a positive message unrelated to the “ad”, an answer to the accusations in the “ad”, and a counter-attack). The propaganda effect is driven by women.

Case | HBS Case Collection | July 2005 (Revised September 2019)

The U.S. Current Account Deficit

Laura Alfaro, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson and Jonathan Schlefer

Investors and policymakers throughout the world were confronted with the risk of painful economic consequences arising from the large U.S. current account deficit. In 2007, the U.S. current account deficit was $731 billion, equivalent to 5.3% of GDP. The implications of the deficit were debated with intensity. At one extreme, it was argued that large deficits would eventually resolve themselves smoothly, even if they persisted for many more years. Former Federal Reserve Chairman Alan Greenspan was among those expecting a "benign resolution to the U.S. current account imbalance." Other analysts, such as economists at the World Bank, believed the large deficits raised the risk of a sharp and disorderly fall of the dollar and that necessary macroeconomic adjustment could be painful, for the United States as well as for the rest of the world. The Financial Times asked: "How long will foreigners be prepared to make such generous 'gifts' to the US?" In this environment, Berkshire Hathaway, run by legendary investor Warren Buffett, postulated that current account imbalances would lead to "some chaotic markets in which currency adjustments play a part" and announced to shareholders a plan to increase investment in overseas companies to protect against this risk. It remained to be seen what the short- and long-term implications of the current account deficit would ultimately yield.

Keywords: Macroeconomics; Borrowing and Debt; Currency; Foreign Direct Investment; Business and Government Relations; United States;

Citation:

Alfaro, Laura, Rafael Di Tella, Ingrid Vogel, Renee Kim, Sarah Jeong, Matthew Johnson, and Jonathan Schlefer. "The U.S. Current Account Deficit." Harvard Business School Case 706-002, July 2005. (Revised September 2019.) View Details

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Meet the Oligarchs: Business Legitimacy, State Capacity and Taxation

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