Aggregate uncertainty, political instability and redistribution
Giorgio Bellettini ()
Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna
This paper associates political instability to real shocks affecting the income of the median voter, in a two-period model where two political parties set redistribution in order to defend the interests of well-de¯ned constituencies. Implemented policies affect future voting outcomes and an intertemporal trade-off arises for the parties since their optimal one-period strategy does not maximize the probability of being reelected. The higher the volatility of the real shock, the more likely that parties deviate from the optimal one-period strategy by choosing a conservative strategy, which increases their chances of reelection and the expected lifetime utility of their constituencies.
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Persistent link: https://EconPapers.repec.org/RePEc:bol:bodewp:213
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