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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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Citations

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Cited by:
  1. Loukas Balafoutas & Martin G. Kocher & Louis Putterman & Matthias Sutter, 2010. "Equality, equity, and incentives: An experiment," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 10-13, School of Economics, University of East Anglia, Norwich, UK..
  2. Marina Agranov & Thomas R. Palfrey, 2014. "Equilibrium Tax Rates and Income Redistribution: A Laboratory Study," NBER Working Papers 19918, National Bureau of Economic Research, Inc.
  3. Wolfgang Hoechtl & Rupert Sausgruber & Jean-Robert Tyran, 2011. "Inequality Aversion and Voting on Redistribution," Working Papers 2011-13, Faculty of Economics and Statistics, University of Innsbruck.
  4. Doerrenberg, Philipp & Duncan, Denvil, 2014. "Tax Incidence in the Presence of Tax Evasion," IZA Discussion Papers 8137, Institute for the Study of Labor (IZA).
  5. Sausgruber, Rupert & Tyran, Jean-Robert, 2011. "Are we taxing ourselves?," Journal of Public Economics, Elsevier, vol. 95(1), pages 164-176.
  6. R. Kline & F. Galeotti & R. Orsini, 2014. "When Foul Play Seems Fair: Dishonesty as a Response to Violations of Just Deserts," Working Papers wp920, Dipartimento Scienze Economiche, Universita' di Bologna.
  7. Rupert Sausgruber & Jean-Robert Tyran, 2013. "Discriminatory Taxes are Unpopular - Even when they are Efficient and Distributionally Fair," Discussion Papers 13-14, University of Copenhagen. Department of Economics.

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