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Redistributive Politics and Market Efficiency: An Experimental Study

Listed author(s):
  • Großer, Jens

    ()

    (Florida State University)

  • Reuben, Ernesto

    ()

    (New York University, Abu Dhabi)

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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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
Publication status: published in: Journal of Public Economics, 2013, 101, 39-52
Handle: RePEc:iza:izadps:dp4549
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