Political ideology as a source of business cycles

Marina Azzimonti

MPRA Paper from University Library of Munich, Germany

Abstract: When the government must decide not only on broad public-policy programs but also on the provision of group-specific public goods, dynamic strategic inefficiencies arise. The struggle between opposing groups–that disagree on the composition of expenditures and compete for office–results in governments being endogenously short-sighted: systematic under-investment in infrastructure and overspending on public goods arises, as resources are more valuable when in power. This distorts allocations even under lump-sum taxation. Ideological biases create asymmetries in the group’s relative political power generating endogenous economic cycles in an otherwise deterministic environment. Volatility is non-monotonic in the size of the bias and is an additional source of inefficiency.

Keywords: Public Investment; Commitment; Probabilistic Voting; Markov Equilibrium; Political Cycles; Time Consistency. (search for similar items in EconPapers)
JEL-codes: E61 E62 H11 H21 H41 O23 (search for similar items in EconPapers)
Date: 2010-06
New Economics Papers: this item is included in nep-cdm, nep-mac and nep-pol
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Related works:
Working Paper: Political ideology as a source of business cycles (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:25937

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