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  4. December 1999
  5. On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model

  • Per Krusell
  • Jose-Victor Rios-Rull
American Economic Review
vol. 89, no. 5, December 1999
(pp. 1156–1181)
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Abstract

We study a dynamic version of Meltzer and Richard's median-voter model of the size of government. Taxes are proportional to total income, and they are redistributed as equal lump-sum transfers. Voting takes place periodically over time, and each consumer votes for the tax rate that maximizes his equilibrium utility. We calibrate the model to U.S. data. Key elements in the calibration are the income and wealth distribution and the parameters governing the leisure and consumption choices. The total size of transfers predicted by our political-economy model is quite close to the size of transfers in the data.

Citation

Krusell, Per, and Jose-Victor Rios-Rull. 1999. "On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model." American Economic Review, 89 (5): 1156–1181. DOI: 10.1257/aer.89.5.1156

JEL Classification

  • H11 Structure, Scope, and Performance of Government
  • O41 One, Two, and Multisector Growth Models
  • P16 Capitalist Systems: Political Economy