Dynamic Political Choice In Macroeconomics

We analyze positive theories of redistribution, social insurance and public good provision in a dynamic macroeconomic framework. Political outcomes are determined via repeated voting and driven by a conflict of interests between agents. Voters and politicians rationally forecast the impact of current political choices on future political and economic outcomes. The theory is consistent with large differences in the size of governments across societies. These need not rely on intrinsic differences in preferences or technology, but may be driven by self-fulfilling expectations about the robustness of the welfare state. (JEL: D72, E62, H11, H31, P16) Copyright (c) 2003 The European Economic Association.