American politics have become extremely polarized in recent decades. This deep political divide has caused significant government dysfunction. Political divisions make the timing, size, and composition of government policy less predictable. According to existing theories, an increase in the...

We analyze the problem of optimal public investment when government purchases of productive capital assets are financed through income taxes. Virtually all previous work in this literature has prescribed a share of public investment in GDP that is both constant and time consistent. This paper...

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...

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...

This paper studies the effects of asymmetries in re-election probabilities across parties on public policy and its subsequent propagation to the economy. The struggle between groups that disagree on targeted transfers results in governments being endogenously short-sighted: Systematic...

is an additional source of inefficiency.

During the last three decades the stock of government debt has increased in most developed countries. During the same period international capital markets have been liberalized. In this paper we develop a two-country political economy model with incomplete markets and endogenous government...

Standard real business cycle theory predicts that consumption should be smoother than output, as observed in developed coun- tries. In this paper we provide a novel explanation of the consumption volatility puzzle based on political factors. In our model groups that disagree on the size of...

Online appendix for the Review of Economic Dynamics article