We explore a political-economy model of labor subsidies, extending Meltzer and Richard's median-voter model to a dynamic setting. We explore only one source of heterogeneity: initial wealth. As a consequence, given an operative wealth effect, poorer agents work harder, and if the agent with...

How does the size of the transfer system evolve in the short and in the long run? We construct a model where taxation is distortionary because it discourages capital accumulation. We compare the Ramsey allocation with the time-consistent allocation. The latter can be interpreted as the outcome...

In this paper we address the time-inconsistency of optimal debt policy—the incentive for a current government to “manipulate interest ratesâ€â€”raised in Lucas and Stokey’s celebrated 1983 paper. The literature that followed suggested various ways to fully overcome...