This paper analyzes the effects of imposing constitutional fiscal restraints in a dynamic political economy model of fiscal policy. Policy choices in each period are made by a legislature consisting of representatives elected by geographically-defined districts. The legislature uses...

Rogerson (1988).

We combine two setups: Bewley-Huggett-Aiyagari and Mortensen-Pissarides. Wages are given by wage bargaining, and wages will depend positively on wealth since rich workers have a better outside option. We also study the model with aggregate risk.