We study the pricing of political uncertainty in a general equilibrium model of government policy choice. We find that … reduces the value of the implicit put protection that the government provides to the market. It also makes stocks more … volatile and more correlated when the economy is weak. In addition, we find that government policies cannot be judged by the …

We analyze how changes in government policy affect stock prices. Our general equilibrium model features uncertainty … about government policy and a government that has both economic and non-economic motives. The government tends to change its … average. The price fall is expected to be large if uncertainty about government policy is large, as well as if the policy …

to trade and the size of its government sector. This association holds for a large cross-section of countries, in low- as … government consumption plays a risk-reducing role in economies exposed to a significant amount of external risk. When openness is … paper also demonstrates that government consumption is the ‘safe’ activity, in the empirically relevant sense, in the vast …

which the power to tax is irretrievably conferred by individuals to government, which can then levy any tax it chooses. In …