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

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 statistics: mean and