Working Paper: CEPR ID: DP537
Authors: Daniel Cohen; Philippe Michel
Abstract: This paper sets a framework for analysing how memoryless voters may come to elect and re-elect a committed policy-maker. Policy-makers, we assume, are trusted to implement the policy that they announce ex ante (and do implement it, if elected and re-elected). Voters, however, are never bound by their previous votes. With no restrictions imposed on the ex ante announcements of the policy-makers, no commitment is, in general, feasible. (As we argue in the text, the Barro-Gordon framework is an exception.) What we show in the paper is how a (natural) set of axiomatic restrictions imposed on the set of policy announcements may yield an unambiguous stationary state towards which all policy announcements will converge.
Keywords: credibility; macroeconomic policy; time inconsistency
JEL Codes: 130310
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Lack of voter commitment (K16) | Potential instability in political commitment of policymakers (D72) |
| Structure of policy announcements (E60) | Political outcomes (D72) |
| Perceived optimal policy (D78) | Stability of political credibility (D72) |