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Habit formation, strategic extremism, and debt policy

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  • Egil Matsen
  • Øystein Thøgersen

Abstract

We suggest a probabilistic voting model where voters’ preferences for alternative public goods display habit formation. Current policies determine habit levels and in turn the future preferences of the voters. This allows the incumbent to act strategically in order to influence the probability of reelection. Comparing to a benchmark case of a certain reelection, we demonstrate that the incumbent’s optimal policy features both a more polarized allocation between the alternative public goods and a debt bias.

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Bibliographic Info

Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 468.

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Date of creation: Jan 2010
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Handle: RePEc:zur:iewwpx:468

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Keywords: Budget deficits; voting; extremism; habit formation;

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  3. Edward L. Glaeser & Giacomo A. M. Ponzetto & Jesse M. Shapiro, 2004. "Strategic Extremism: Why Republicans and Democrats Divide on Religious Values," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 2044, Harvard - Institute of Economic Research.
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  17. Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, American Economic Association, vol. 90(3), pages 356-366, June.
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Cited by:
  1. Pitsoulis, Athanassios & Siebel, Jens Peter, 2009. "Zur politischen Ökonomie von Defiziten und Kapitalsteuerwettbewerb," Discourses in Social Market Economy 2009-13, OrdnungsPolitisches Portal (OPO).

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