The dynamics of government

Kjetil Storesletten, University of Oslo
John Hassler, IIES Stockholm University and CEPR, Sweden
Per Krusell, Princeton University, IIES and CEPR, USA
Fabrizio Zilibotti, IIES Stockholm University and CEPR, Sweden

Abstract

We model income redistribution with dynamic distortions as determined by rational voting without commitment among individuals of different types and income realizations. We find that redistribution is too persistent relative to that chosen by a planner with commitment. The difference is larger, the lower is the political influence of young agents, the lower is the altruistic concern for future generations, and the lower is risk-aversion. Furthermore, there tends to be too much redistribution in the political equilibrium. Finally, smooth preference aggregation, as under probabilistic voting, produces less persistence and does not admit multiple equilibria, which occur under majority-voting aggregation.