Working Paper: NBER ID: w22934
Authors: Rafael Di Tella; Juan Dubra; Alejandro Luis Lagomarsino
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 more trust causes a decline in desired taxes. This is particularly strong for our treatment decreasing trust in business elites, which causes an increase in desired taxes on the top 1% of 1.2 percentage points. The effect closes 14% of the gap in tax preferences between Democrats and Republicans, 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.
Keywords: trust; business legitimacy; government; taxation; policy preferences; state capacity
JEL Codes: H2; K42; P16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| distrust in business elites (D73) | increase in desired taxes on the top 1% (H29) |
| low trust in government (H10) | increase in desired taxes on the top 1% (H29) |
| increase in trust in government (H12) | decrease in desired taxes on the top 1% (H26) |
| lower trust in business elites (D73) | increase in demand for regulation (G18) |
| higher trust in business elites (D73) | more favorable views on meetings between public officials and businesspeople (L14) |
| higher trust in government (H10) | more favorable views on meetings between public officials and businesspeople (L14) |