• Andrea Mattozzi

    1. California Institute of Technology, U.S.A.
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      I am grateful to Bob Inman, Andrew Postlewaite, Frank Schorfheide, and in particular to Antonio Merlo for their comments and encouragement. I also thank Mike Alvarez, Marco Cozzi, Alfredo Di Tillio, Federico Echenique, Jan Eeckhout, Jacob Goeree, Daniela Iorio, Matt Jackson, Dirk Krueger, Preston McAfee, Elena Pastorino, Nicola Persico, and two anonymous referees. All usual disclaimers apply. Please address correspondence to: Andrea Mattozzi, Department of HSS, Caltech, 1200 E California Blvd, Mail code 228-77, Pasadena, CA 91125. Phone: 626 395-3473. Fax: 626-793-8580. E-mail: andrea@hss.caltech.edu.

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    Manuscript received February 2007; revised March 2008.


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.