On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model

Per Krusell, José-Víctor Ríos-Rull
1999 The American Economic Review  
We study a dynamic version of Meltzer and Richard's median-voter model of the size of government. Taxes are proportional to total income, and they are redistributed as equal lump-sum transfers. Voting takes place periodically over time, and each consumer votes for the tax rate that maximizes his equilibrium utility. We calibrate the model to match U.S. data. Key elements in the calibration are the income and wealth distribution and the parameters governing the labor-leisure and
more » ... nd consumption-savings choices. The total size of transfers predicted by our politicaleconomy model is quite close to the size of transfers in the data. (JEL E60, H11, P16)
doi:10.1257/aer.89.5.1156 fatcat:unyueeooczb4bk7llde53plm3e