Politico-Economic Inequality and the Comovement of Government Purchases

Review of Economic Dynamics, 2013, vol. 16, issue 4, 565-580

Abstract: This paper explores the implications of economic and political inequality for the comovement of government purchases with macroeconomic fluctuations. We set up and compute a heterogeneous-agent neoclassical growth model, where households value government purchases which are financed by income taxes. A key feature of the model is a wealth bias in the political aggregation process. When calibrated to U.S. wealth inequality and exposed to aggregate productivity shocks, such a model is able to generate weaker positive comovement of government purchases than models with no political wealth bias. The wealth bias thatmatches the cross-sectional campaign contribution distribution by income is consistent with themild positive comovement of government purchases in the aggregate data. We thus provide an empirically relevant example where economic and political heterogeneity matter for aggregate dynamics. (Copyright: Elsevier)

Keywords: Government purchases; Wealth bias; Economic inequality; Political inequality; Heterogeneous agents; Politico-economic equilibrium (search for similar items in EconPapers)
JEL-codes: E30 E32 E60 E62 H30 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://dx.doi.org/10.1016/j.red.2012.09.008
Access to full texts is restricted to ScienceDirect subscribers and institutional members. See http://www.sciencedirect.com/ for details.

Related works:
Software Item: Code and data files for "Politico-Economic Inequality and the Comovement of Government Purchases" (2012)
Working Paper: Online Appendix to "Politico-Economic Inequality and the Comovement of Government Purchases" (2012)
Working Paper: Government Purchases Over the Business Cycle: the Role of Economic and Political Inequality (2010)
Working Paper: Government Purchases Over the Business Cycle: the Role of Heterogeneity and Wealth Bias in Political Decision Making (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:issued:11-243

Ordering information: This journal article can be ordered from
https://www.economic ... ription-information/

DOI: 10.1016/j.red.2012.09.008

Access Statistics for this article

Review of Economic Dynamics is currently edited by Loukas Karabarbounis

More articles in Review of Economic Dynamics from Elsevier for the Society for Economic Dynamics Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().