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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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  • Andrea Mattozzi, 2010. "Policy Uncertainty, Electoral Securities, And Redistribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 51(1), pages 45-71, February.
    • Handle: RePEc:ier:iecrev:v:51:y:2010:i:1:p:45-71
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    Cited by:

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    2. Saumitra Jha, 2012. "Sharing the Future: Financial Innovation and Innovators in Solving the Political Economy Challenges of Development," International Economic Association Series, in: Masahiko Aoki & Timur Kuran & Gérard Roland (ed.), Institutions and Comparative Economic Development, chapter 7, pages 131-151, Palgrave Macmillan.
    3. Knight*, Brian, 2007. "Are policy platforms capitalized into equity prices? Evidence from the Bush/Gore 2000 Presidential Election," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 389-409, February.
    4. 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, March.

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