Median-voter Equilibria in the Neoclassical Growth Model under Aggregation*

Authors


  • *

    We would like to thank participants at the Public Economic Theory Conference, Duke University, 2003, the Society of Computational Economics Conference, Washington, 2005, the Wegmans Conference, Rochester, 2005, and Atsushi Oshima for research assistantship.

Abstract

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.

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