43 Pages Posted: 24 Mar 2009
Date Written: March 24, 2009
This paper investigates how public policy responds to persistent ideological shifts in dynamic politico-economic equilibria. To this end, we develop a tractable model to analyze the dynamic interactions among public policy, individuals' intertemporal choice and the evolution of political constituency. Analytical solutions are obtained to characterize Markov perfect equilibria. Our main finding is that a right-wing ideology may increase the size of government. Data from a panel of 18 OECD countries confirm that after controlling for the partisan effect, there is a positive relationship between the right-wing political constituency and the government size. This is consistent with our theoretical prediction, but hard to explain by existing theories.
Keywords: Markov Equilibrium, Persistent Ideology, Political Economy, Public Policy, Repeated Voting
JEL Classification: D72, E62
Suggested Citation: Suggested Citation
Song, Zheng Michael, Persistent Ideology and the Determination of Public Policy over Time (March 24, 2009). Available at SSRN: https://ssrn.com/abstract=1367474 or http://dx.doi.org/10.2139/ssrn.1367474