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Policy Uncertainty, Electoral Securities, And Redistribution

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  • Andrea Mattozzi

Abstract

This article investigates how uncertainty about the adoption of a redistribution policy affects political support for redistribution when individuals can trade policy-contingent securities in the stock market. In equilibrium the support for redistribution is smaller than where no "policy-insurance market" is available. This implies that in economies with well-developed financial markets redistribution decreases with the level of participation in these markets and with income inequality. Furthermore, the existence of a policy-insurance market may lead to a less equal distribution of income than where no insurance is available even if a majority of individuals are redistributing resources through private transfers. Copyright (2010) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

Volume (Year): 51 (2010)
Issue (Month): 1 (02)
Pages: 45-71

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Handle: RePEc:ier:iecrev:v:51:y:2010:i:1:p:45-71

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  1. Marco Celentani & J. Ignacio Conde-Ruiz & Klaus Desmet, 2004. "Endogenous Policy Leads to Inefficient Risk Sharing," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(3), pages 758-787, July.
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Cited by:
  1. Brian Knight, 2004. "Are Policy Platforms Capitalized into Equity Prices? Evidence from the Bush/Gore 2000 Presidential Election," NBER Working Papers 10333, National Bureau of Economic Research, Inc.
  2. Michael M. Bechtel & Roland Füss, 2010. "Capitalizing on Partisan Politics? The Political Economy of Sector-Specific Redistribution in Germany," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(2-3), pages 203-235, 03.
  3. Jha, Saumitra, 2011. "Sharing the Future: Financial Innovation and Innovators in Solving the Political Economy Challenges of Development," Research Papers 2093, Stanford University, Graduate School of Business.

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