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Policy Uncertainty, Electoral Securities and Redistribution

Mattozzi, Andrea (2005) Policy Uncertainty, Electoral Securities and Redistribution. Social Science Working Paper, 1229. California Institute of Technology , Pasadena, CA. (Unpublished)

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This paper 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. We show that the demand for redistribution is always smaller than in the case where no “policy-insurance market” is available. Consistent with the empirical evidence, our analysis implies that in economies with well-developed financial markets the level of redistribution decreases with the level of participation in these markets and with income inequality. We show that the existence of a policy insurance market may increase future expected inequality even if a majority of individuals are redistributing resources through private transfers.

Item Type:Report or Paper (Working Paper)
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Additional Information:This paper is a chapter of my doctoral dissertation. I am grateful to Bob Inman, Andrew Postlewaite, Frank Schorfheide, and in particular to Antonio Merlo for their comments and encouragement. I also benefitted from discussions with Mike Alvarez, Marco Cozzi, Federico Echenique, Jan Eeckhout, Jacob Goeree, Daniela Iorio, Matt Jackson, Dirk Krueger, Elena Pastorino and Nicola Persico. All usual disclaimers apply.
Group:Social Science Working Papers
Subject Keywords:Policy Uncertainty, Financial Markets, Redistribution
Series Name:Social Science Working Paper
Issue or Number:1229
Classification Code:JEL: D72, G10, D31
Record Number:CaltechAUTHORS:20170808-150121475
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79962
Deposited By: Hanna Storlie
Deposited On:09 Aug 2017 18:26
Last Modified:03 Oct 2019 18:26

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