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Persistent Ideology and the Determination of Public Policies over Time

This paper investigates how public policy responds to persistent ideological shifts in dynamic politico-economic equilibria. To this end, we develop a tractable model to analyze the dynamic interactions among public policy, individuals' intertemporal choice and the evolution of political constituency. Analytical solutions are obtained to characterize Markov perfect equilibria. Our main finding is that a right-wing ideology may increase the size of government. Data from a panel of 18 OECD countries confirm that after controlling for the partisan effect, there is a positive relationship between the right-wing political constituency and the government size. This is consistent with our theoretical prediction, but hard to explain by existing theories.

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File URL: http://mpra.ub.uni-muenchen.de/10364/1/MPRA_paper_10364.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10364.

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Date of creation: 08 Mar 2008
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Handle: RePEc:pra:mprapa:10364
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  8. Besley, Timothy & Coate, Stephen, 1998. "Sources of Inefficiency in a Representative Democracy: A Dynamic Analysis," American Economic Review, American Economic Association, vol. 88(1), pages 139-56, March.
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  12. Per Krusell & Jose-Victor Rios-Rull, 1997. "On the size of U.S. government: political economy in the neoclassical growth model," Staff Report 234, Federal Reserve Bank of Minneapolis.
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  16. Herrendorf, Berthold & Valentinyi, Akos & Waldmann, Robert, 2000. "Ruling Out Multiplicity and Indeterminacy: The Role of Heterogeneity," Review of Economic Studies, Wiley Blackwell, vol. 67(2), pages 295-307, April.
  17. Alesina, Alberto & Tabellini, Guido, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 403-14, July.
  18. Rafael Di Tella & Robert MacCulloch, 2005. "Partisan Social Happiness," Review of Economic Studies, Oxford University Press, vol. 72(2), pages 367-393.
  19. Marina Azzimonti Renzo, 2004. "On the dynamic inefficiency of governments," 2004 Meeting Papers 228, Society for Economic Dynamics.
  20. Kalt, Joseph P & Zupan, Mark A, 1984. "Capture and Ideology in the Economic Theory of Politics," American Economic Review, American Economic Association, vol. 74(3), pages 279-300, June.
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