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Economic and Politico-Economic Equivalence

Martin Gonzalez-Eiras () and Dirk Niepelt ()

No 9203, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We extend "economic equivalence" results, like the Ricardian equivalence proposition, to the political sphere where policy is chosen sequentially. We derive conditions under which a policy regime (summarizing admissible policy choices in every period) and a state are "politico-economically equivalent" to another such pair, in the sense that both pairs give rise to the same equilibrium allocation. The equivalence conditions help to identify factors that render institutional change non-neutral. We exemplify their use in the context of several applications, relating to social security reform, tax-smoothing policies and measures to correct externalities.

Keywords: equivalence; government debt; politico-economic equilibrium; social security reform; tax policy (search for similar items in EconPapers)
JEL-codes: E62 H55 H63 (search for similar items in EconPapers)
Date: 2012-11
New Economics Papers: this item is included in nep-mac
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