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On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model

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Author Info
Per Krusell
Jose-Victor Rios-Rull

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Abstract

We study a dynamic version of Meltzer and Richard's median-voter model of the size of government. Taxes are proportional to total income, and they are redistributed as equal lump-sum transfers. Voting takes place periodically over time, and each consumer votes for the tax rate that maximizes his equilibrium utility. We calibrate the model to U.S. data. Key elements in the calibration are the income and wealth distribution and the parameters governing the leisure and consumption choices. The total size of transfers predicted by our political-economy model is quite close to the size of transfers in the data.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 89 (1999)
Issue (Month): 5 (December)
Pages: 1156-1181
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Handle: RePEc:aea:aecrev:v:89:y:1999:i:5:p:1156-1181

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  2. Bertola, Giuseppe, 1993. "Factor Shares and Savings in Endogenous Growth," American Economic Review, American Economic Association, vol. 83(5), pages 1184-98, December. [Downloadable!] (restricted)
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  3. Laurence J. Kotlikoff & Lawrence H. Summers, 1981. "The Role of Intergenerational Transfers in Aggregate Capital Accumulation," NBER Working Papers 0445, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Boyd, J.H., 1994. "The Existence of Steady States in Multisector Capital Accumulation Models with Recursive Preferences," RCER Working Papers 392, University of Rochester - Center for Economic Research (RCER).
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  5. Sarte, Pierre-Daniel G., 1997. "Progressive taxation and income inequality in dynamic competitive equilibrium," Journal of Public Economics, Elsevier, vol. 66(1), pages 145-171, October. [Downloadable!] (restricted)
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  10. Krusell, Per & Rios-Rull, Jose-Victor, 1996. "Vested Interests in a Positive Theory of Stagnation and Growth," Review of Economic Studies, Blackwell Publishing, vol. 63(2), pages 301-29, April. [Downloadable!] (restricted)
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  11. Per Krusell & José-Victor Ríos-Rull, 1994. "What Constitutions Promote Capital Accumulation? A Political-Economy Approach," Wallis Working Papers WP1, University of Rochester - Wallis Institute of Political Economy.
  12. Chamley, Christophe, 1986. "Optimal Taxation of Capital Income in General Equilibrium with Infinite Lives," Econometrica, Econometric Society, vol. 54(3), pages 607-22, May. [Downloadable!] (restricted)
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  15. Glomm, Gerhard & Ravikumar, B, 1992. "Public versus Private Investment in Human Capital Endogenous Growth and Income Inequality," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 813-34, August.
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  18. Greenwood, Jeremy & Hercowitz, Zvi & Huffman, Gregory W, 1988. "Investment, Capacity Utilization, and the Real Business Cycle," American Economic Review, American Economic Association, vol. 78(3), pages 402-17, June. [Downloadable!] (restricted)
  19. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1997. "Politico-economic equilibrium and economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 21(1), pages 243-272, January. [Downloadable!] (restricted)
  20. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June. [Downloadable!] (restricted)
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  21. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204 Elsevier. [Downloadable!] (restricted)
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  23. repec:fth:coluec:595 is not listed on IDEAS
  24. Javier Díaz-Giménez & Vincenzo Quadrini & José-Víctor Ríos-Rull, 1997. "Dimensions of inequality: facts on the U.S. distributions of earnings, income, and wealth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-21. [Downloadable!]
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  27. Rios-Rull, Jose-Victor, 1996. "Life-Cycle Economies and Aggregate Fluctuations," Review of Economic Studies, Blackwell Publishing, vol. 63(3), pages 465-89, July. [Downloadable!] (restricted)
  28. Grossman, Gene M & Helpman, Elhanan, 1998. "Intergenerational Redistribution with Short-Lived Governments," Economic Journal, Royal Economic Society, vol. 108(450), pages 1299-1329, September. [Downloadable!] (restricted)
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  29. Husted, Thomas A & Kenny, Lawrence W, 1997. "The Effect of the Expansion of the Voting Franchise on the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 105(1), pages 54-82, February.
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  31. Aiyagari, S Rao, 1994. "Uninsured Idiosyncratic Risk and Aggregate Saving," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 659-84, August. [Downloadable!] (restricted)
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  32. Chatterjee, Satyajit, 1994. "Transitional dynamics and the distribution of wealth in a neoclassical growth model," Journal of Public Economics, Elsevier, vol. 54(1), pages 97-119, May. [Downloadable!] (restricted)
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