Irreversible investments, dynamic inconsistency and policy convergence

Rune Hagen and Gaute Torsvik

No 02/07, Working Papers in Economics from University of Bergen, Department of Economics

Abstract: We study a model where two parties, one from the left and one from the right, compete for position. The election is to be held in the near future and the outcome is uncertain. Prior to the election, the members of both parties nominate their prime ministerial candidates. Investors care about the outcome since they may invest in irreversible domestic production capital. We find that there is political convergence in the nomination process. In some circumstances, it is only the median voter of the left-wing party that elects a more moderate candidate. In other instances, the members of both parties nominate more "conservative" candidates, but there is still convergence. We also show that a higher probability of the left winning the election increases the degree of convergence, while a more globalised economy (greater capital mobility) reduces it.

Keywords: Policy Objectives; Policy Designs and Consistency; Policy Coordination; International Investment; Long-Term Capital Movements; Personal Income and Other Nonbusiness Taxes and Subsidies; Political Economy. (search for similar items in EconPapers)
JEL-codes: E61 F21 H24 P16 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2008-01-27
References: Add references at CitEc
Citations:

Downloads: (external link)
http://ekstern.filer.uib.no/svf/2007/No.%2002-07.pdf Full text (application/pdf)

Related works:
Working Paper: Irreversible Investments, Dynamic Inconsistency and Policy Convergence (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:bergec:2007_002

Access Statistics for this paper

More papers in Working Papers in Economics from University of Bergen, Department of Economics Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway. Contact information at EDIRC.
Bibliographic data for series maintained by Kjell Erik Lommerud ().