On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model
Krusell, Per, and
Jose-Victor Rios-Rull. 1999. "On the Size of U.S. Government: Political Economy in the Neoclassical Growth Model."
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 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.
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Krusell, Per (U Rochester Inst for Int'l Econ Studies, and CEPR)
Rios-Rull, Jose-Victor (U PA and NBER)
H11: Structure, Scope, and Performance of Government
O41: One, Two, and Multisector Growth Models
P16: Capitalist Systems: Political Economy