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Standard real business cycle theory predicts that consumption should be smoother than output, as observed in developed coun- tries. In this paper we provide a novel explanation of the consumption volatility puzzle based on political factors. In our model groups that disagree on the size of...
Persistent link: https://www.econbiz.de/10011081554
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...
Persistent link: https://www.econbiz.de/10010939563
Standard real business cycle theory predicts that consumption should be smoother than output, as observed in developed countries. In emerging economies, however, consumption is more volatile than income. In this paper the authors provide a novel explanation of this phenomenon, the ‘consumption...
Persistent link: https://www.econbiz.de/10009141715
American politics have become extremely polarized in recent decades. This deep political divide has caused significant government dysfunction. Political divisions make the timing, size, and composition of government policy less predictable. According to existing theories, an increase in the...
Persistent link: https://www.econbiz.de/10011027305
We analyze the problem of optimal public investment when government purchases of productive capital assets are financed through income taxes. Virtually all previous work in this literature has prescribed a share of public investment in GDP that is both constant and time consistent. This paper...
Persistent link: https://www.econbiz.de/10004994035
We explore a political economy model of labor subsidies, extending Meltzer and Richard's median voter model to a dynamic setting. We explore only one source of heterogeneity: initial wealth. As a consequence, given an operative wealth effect, poorer agents work harder, and if the agent with...
Persistent link: https://www.econbiz.de/10004994055
Persistent link: https://www.econbiz.de/10005428644
We study a dynamic version of Meltzer and Richard’s median-voter model where agents differ in initial wealth. Taxes are proportional to total income, and they are redistributed as equal lump-sum transfers. Voting takes place every period and each consumer votes for the current tax rate that...
Persistent link: https://www.econbiz.de/10011161589
This paper studies the effects of asymmetries in re-election probabilities across parties on public policy and its subsequent propagation to the economy. The struggle between groups that disagree on targeted transfers results in governments being endogenously short-sighted: Systematic...
Persistent link: https://www.econbiz.de/10011080102
is an additional source of inefficiency.
Persistent link: https://www.econbiz.de/10011080863