Premium
Median‐voter Equilibria in the Neoclassical Growth Model under Aggregation *
Author(s) -
Azzimonti Marina,
De Francisco Eva,
Krusell Per
Publication year - 2006
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2006.00472.x
Subject(s) - economics , voting , mathematical economics , markov chain , welfare , growth model , voter model , aggregate (composite) , order (exchange) , steady state (chemistry) , econometrics , overlapping generations model , state (computer science) , microeconomics , mathematics , statistics , market economy , materials science , chemistry , finance , algorithm , politics , political science , law , composite material
We study a dynamic version of Meltzer and Richard's median‐voter model where agents differ in wealth. Taxes are proportional to income and are redistributed as equal lump‐sum transfers. Voting occurs every period and each consumer votes for the tax that maximizes his welfare. We characterize time‐consistent Markov‐perfect equilibria twofold. First, restricting utility classes, we show that the economy's aggregate state is mean and median wealth. Second, we derive the median‐voter's first‐order condition interpreting it as a tradeoff between distortions and net wealth transfers. Our method for solving the steady state relies on a polynomial expansion around the steady state.