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Pay-donation elasticities - Top executive compensation and party political donation of the rich

Academic & Research
The CEU Campus
Wednesday, October 26, 2016, 5:30 pm – 7:10 pm

PERG lecture by Renira Corinne Angeles



Why does inequality exist in modern democracies? Despite escalating concentration of top incomes and inequality, governments keep turning a blind eye on capping income at the top, and curbing power of wealthy individuals and firms. In this paper, I examine, if (and how) increase in top executive compensation and firm wealth affect political influence. To what extent is party donation as political influence responsible for increase in top income concentration? Party contribution and influence of top income group has increased over time (Bonica et al. 2013). While average voters are concerned with vertical inequality, the rich are concerned with their “disadvantage” to each other (within the top 1-5 pct income group) (Hecht, forthcoming). In this paper, I argue that increasing concentration of top incomes enforce obstacles to collective action. Econometric analysis data during the time span 2001-2015 on party political donation, matched with data on top executive compensation and firm revenue in the UK, shows firstly that increase in average levels of top executive compensation and firm wealth affect party donation. Effects differ based on party political preferences, and between top managers and firms. Firms and individual donors behave differently where despite large amount of firm profits, companies prefer to donate to parties less than individuals. Although this might suggest that the rich are not a coherent organized group in the UK compared to the US, the centralized system of the UK compared to the US, and strong government ideologies of neoliberal growth strategies (supply side) cannot alone explain askew regulation of finance, top executive compensation and firm wealth (via tax) in the UK.