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Median-voter Equilibria in the Neoclassical Growth Model under Aggregation: Working Paper 2005-09

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  • Marina Azzimonti
  • Eva de Francisco
  • Per Krusell

Abstract

We study a dynamic version of Meltzer and Richard’s median-voter model where agents differ in initial wealth. Taxes are proportional to total income, and they are redistributed as equal lump-sum transfers. Voting takes place every period and each consumer votes for the current tax rate that maximizes his or her welfare. We characterize time-consistent (differentiable) Markov-perfect equilibria in three ways. First, by restricting the class of utility functions, we show that independently of the number of wealth types, the economy’s aggregate state can be summarized by two

Suggested Citation

  • Marina Azzimonti & Eva de Francisco & Per Krusell, 2005. "Median-voter Equilibria in the Neoclassical Growth Model under Aggregation: Working Paper 2005-09," Working Papers 17577, Congressional Budget Office.
    • Handle: RePEc:cbo:wpaper:17577
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    File URL: https://www.cbo.gov/sites/default/files/109th-congress-2005-2006/workingpaper/2005-09_0.pdf
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    References listed on IDEAS

    as
    1. Per Krusell & Anthony A. Smith, Jr., 2003. "Consumption--Savings Decisions with Quasi--Geometric Discounting," Econometrica, Econometric Society, vol. 71(1), pages 365-375, January.
    2. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 465-490.
    3. Krusell, Per, 2002. "Time-consistent redistribution," European Economic Review, Elsevier, vol. 46(4-5), pages 755-769, May.
    4. B. D. Bernheim & S. N. Slavov, 2009. "A Solution Concept for Majority Rule in Dynamic Settings," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(1), pages 33-62.
    5. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
    6. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
    7. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-927, October.
    8. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
    9. Maskin, Eric & Tirole, Jean, 2001. "Markov Perfect Equilibrium: I. Observable Actions," Journal of Economic Theory, Elsevier, vol. 100(2), pages 191-219, October.
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