This paper considers political competition and the consequences of political polarization when parties are better informed about how the economy functions than voters are. Specifically, parties know the cost of producing a public good, voters do not. An incumbent's choice of policy acts like a signal for costs before an upcoming election. It is shown that the more polarized the political parties the more distorted is the incumbent's policy choice.
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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number
96-07.
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