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Redistributive Politics and Market Efficiency: An Experimental Study

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  • Großer, Jens

    () (Florida State University)

  • Reuben, Ernesto

    () (Columbia University)

Abstract

We study the interaction between competitive markets that produce large but unequally distributed welfare gains and elections through which the poor majority can redistribute income away from the rich minority. In our simple laboratory democracy, subjects first earn their income by trading in a double auction market and thereafter vote on redistributive policies in two-candidate elections. In addition, in one of the treatments subjects can attempt to influence the candidates’ policy choices by transferring money to them. We observe very high levels of redistribution – even when transfers to candidates are possible – with little effect on market efficiency. Overall, the experimental results are explained by our equilibrium predictions.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4549.

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Length: 41 pages
Date of creation: Nov 2009
Date of revision:
Publication status: published in: Journal of Public Economics, 2013, 101, 39-52
Handle: RePEc:iza:izadps:dp4549

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Keywords: lobbying; redistribution; double auction; elections;

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References

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Citations

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Cited by:
  1. Höchtl, Wolfgang & Sausgruber, Rupert & Tyran, Jean-Robert, 2012. "Inequality aversion and voting on redistribution," European Economic Review, Elsevier, vol. 56(7), pages 1406-1421.
  2. Jens Großer & Ernesto Reuben & Agnieszka Tymula, 2010. "Tacit Lobbying Agreements: An Experimental Study," Working Paper Series in Economics 50, University of Cologne, Department of Economics.
  3. Sausgruber, Rupert & Tyran, Jean-Robert, 2011. "Are we taxing ourselves?," Journal of Public Economics, Elsevier, vol. 95(1), pages 164-176.
  4. Christos Bilanakos, 2012. "Consumers’ Heterogeneity, Publicness of Goods and the Size of Public Sector," University of Cyprus Working Papers in Economics 18-2012, University of Cyprus Department of Economics.

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