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Ideological Polarization, Sticky Information, and Policy Reforms

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  • Tomer Blumkin
  • Volker Grossmann

Abstract

We develop a dynamic two-party political economy framework, in which parties seek to maximize vote share and face the trade-off between catering to their respective core constituencies on the one hand and ‘middle of the road’ voters with no partisan affiliation on the other hand. In contrast to ideology-driven individuals, ‘middle of the road’ voters care about the state of the economy in the sense that a policy reform is desirable for them when the fundamentals of the economy change. However, information is “sticky” in the sense that the process of information diffusion about the state of the economy, which is determined by some exogenous stochastic process, is imperfect. Contrary to conventional wisdom, we show that an increase in ideological polarization may enhance social welfare by mitigating the friction in information flow.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1274.

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Date of creation: 2004
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Handle: RePEc:ces:ceswps:_1274

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Keywords: ideological polarization; sticky information; partisanship; policy reform;

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References

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  1. Persson, Torsten & Tabellini, Guido, 1997. "Political Economics and Macroeconomic Policy," CEPR Discussion Papers 1759, C.E.P.R. Discussion Papers.
  2. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information Versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," NBER Working Papers 8290, National Bureau of Economic Research, Inc.
  3. Schultz, Christian, 1996. "Polarization and Inefficient Policies," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 331-44, April.
  4. Cukierman, A. & Tommasi, M., 1997. "When Does It Take a Nixon to Go to China," Papers 30-97, Tel Aviv.
  5. Grossman, Gene M & Helpman, Elhanan, 1996. "Electoral Competition and Special Interest Politics," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 265-86, April.
  6. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
  7. Fernandez, Raquel & Rodrik, Dani, 1991. "Resistance to Reform: Status Quo Bias in the Presence of Individual-Specific Uncertainty," American Economic Review, American Economic Association, vol. 81(5), pages 1146-55, December.
  8. Esteban, J.M. & Ray, D., 1992. "On the Measurement of Polarization," UFAE and IAE Working Papers 171.92, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  9. Steven Greene, 2004. "Social Identity Theory and Party Identification," Social Science Quarterly, Southwestern Social Science Association, vol. 85(1), pages 136-153.
  10. Alesina, Alberto & Perotti, Roberto, 1996. "Fiscal Discipline and the Budget Process," American Economic Review, American Economic Association, vol. 86(2), pages 401-07, May.
  11. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
  12. Christopher D Carroll, 2002. "Macroeconomic Expectations of Households and Professional Forecasters," Economics Working Paper Archive 477, The Johns Hopkins University,Department of Economics.
  13. Ron Shachar, 2003. "Party loyalty as habit formation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(3), pages 251-269.
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Cited by:
  1. Aleksander Berentsen & Esther Bruegger & Simon Loertscher, 2005. "Learning, voting and the information trap," Diskussionsschriften dp0516, Universitaet Bern, Departement Volkswirtschaft.

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