On the size of U.S. Government: Political economy in the neoclassical growth model

Per Krusell, José Víctor Ríos-Rull

Research output: Contribution to journalArticlepeer-review

115 Scopus citations

Abstract

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 U.S. data. Key elements in the calibration are the income and wealth distribution and the parameters governing the leisure and consumption choices. The total size of transfers predicted by our political-economy model is quite close to the size of transfers in the data. (JEL E60, H11, P16).

Original languageEnglish (US)
Pages (from-to)1156-1181
Number of pages26
JournalAmerican Economic Review
Volume89
Issue number5
DOIs
StatePublished - Dec 1999

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