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

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  • Jose-Victor Rios-Rull
  • Per Krusell

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.

Suggested Citation

  • Jose-Victor Rios-Rull & Per Krusell, 1999. "On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model," American Economic Review, American Economic Association, vol. 89(5), pages 1156-1181, December.
    • Handle: RePEc:aea:aecrev:v:89:y:1999:i:5:p:1156-1181
    Note: DOI: 10.1257/aer.89.5.1156
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    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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