Capital Redistribution and the Market Allocation of Firm-Ownership

34 Pages Posted: 7 Feb 2002

See all articles by H. P. Gruner

H. P. Gruner

University of Mannheim - Department of Economics; Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR)

Rudiger Schils

University of Bonn - Institute of Economic Policy

Date Written: January 2002

Abstract

This Paper studies the relationship between political wealth redistribution and the allocation of firm-ownership when production requires an unobservable input. The economy's wealth distribution affects the equilibrium interest rate and the allocation of entrepreneurial rents because wealth serves as a bonding device and determines agents' ability and willingness to borrow. This leads to unconventional voting behaviour of the politically decisive middle class: the political preferences of middle and upper class voters coincide when redistribution only has an adverse interest-rate effect. Middle class voters vote with the lower class instead if redistribution enables them to get access to entrepreneurial rents. Technological change may in-duce dramatic changes in political outcomes and greater inequality pronounces the interest-rate effect and may lead to less redistribution.

Keywords: Inequality, redistibutive taxation, firm-ownership, moral hazard

JEL Classification: D24, D30, D72, P12, P16

Suggested Citation

Grüner, Hans Peter and Schils, Rudiger, Capital Redistribution and the Market Allocation of Firm-Ownership (January 2002). Available at SSRN: https://ssrn.com/abstract=298244

Hans Peter Grüner (Contact Author)

University of Mannheim - Department of Economics ( email )

D-68131 Mannheim
Germany

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Rudiger Schils

University of Bonn - Institute of Economic Policy ( email )

Adenauerallee 24
D-53113 Bonn
Germany
+49 228 733919 (Phone)
+49 228 739221 (Fax)

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