During the last three decades government debt has increased in most developed countries. During the same period we have also observed a significant liberalization of international financial markets. We propose a multi-country model with incomplete markets and show that governments may choose...

Four stylized facts motivate this paper: (i) business cycle movements are wider in emerging countries (EC) than in developed ones; (ii) EC experience greater economic policy uncertainty; (iii) EC are more polarized and less politically stable; and (iv) EPU is positively related to political...

This paper studies the effects of asymmetries in re-election probabilities across parties on public policy and their subsequent propagation to the economy. The struggle between groups that disagree on targeted public spending (e.g., pork) results in governments being endogenously short-sighted:...

We study a dynamic version of Meltzer and Richard's median-voter model where agents differ in wealth. Taxes are proportional to income and are redistributed as equal lump-sum transfers. Voting occurs every period and each consumer votes for the tax that maximizes his welfare. We characterize...

I present a tractable dynamic model of political economy where disagreements about the composition of public spending result in implementation of short-sighted policies. Excessive taxation reduces the return to physical capital and hence investment rates, which slows down growth along the...

During the last three decades, the stock of government debt has increased in most developed countries. During the same period, we also observe a significant liberalization of international financial markets and an increase in income inequality in several industrialized countries. In this paper...

I present a model where disagreements about the composition of spending in a polarized and politically unstable society result in implementation of short-sighted policies and large governments. Investment rates are too low which slows down growth along the transition. In the long run, this...

The size of the Social Security program as a percentage of output has increased continuously since its inception. The main expansion has been on the extensive margin (number of individuals under the program), rather than on the intensive margin (benefits per old). Most of the increase was not...

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...