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Politico-Economic Equivalence

Martin Gonzalez-Eiras () and Dirk Niepelt ()

Review of Economic Dynamics, 2015, vol. 18, issue 4, 843-862

Abstract: Traditional "economic equivalence" results, like the Ricardian equivalence proposition, define equivalence classes over exogenous policies. We derive "politico-economic equivalence" conditions that apply in environments where policy is endogenous and chosen sequentially. A policy regime and a state are equivalent to another such pair if both pairs give rise to the same allocation in politico-economic equilibrium. The equivalence conditions help to identify factors that render institutional change non-neutral and to construct politico-economic equilibria in new policy regimes. We exemplify their use in the context of several applications, relating to social security reform, tax-smoothing policies and measures to correct externalities. (Copyright: Elsevier)

Keywords: Equivalence; Politico-economic equilibrium; Tax Policy; Government debt; Social security reform (search for similar items in EconPapers)
JEL-codes: E62 H55 H63 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1016/j.red.2015.08.001

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