Working Paper: CEPR ID: DP9203
Authors: Martin Gonzalezeiras; Dirk Niepelt
Abstract: We extend "economic equivalence" results, like the Ricardian equivalence proposition, to the political sphere where policy is chosen sequentially. We derive conditions under which a policy regime (summarizing admissible policy choices in every period) and a state are "politico-economically equivalent" to another such pair, in the sense that both pairs give rise to the same equilibrium allocation. The equivalence conditions help to identify factors that render institutional change non-neutral. We exemplify their use in the context of several applications, relating to social security reform, tax-smoothing policies and measures to correct externalities.
Keywords: equivalence; government debt; politicoeconomic equilibrium; social security reform; tax policy
JEL Codes: E62; H55; H63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| policy regime and state (P16) | equilibrium allocation (D51) |
| institutional changes (O17) | equilibrium allocations (D51) |
| pay-as-you-go social security regime (H55) | debt-financed regime (H69) |
| timing of tax collections (H26) | elasticity of the tax base (H30) |
| pigovian taxes and cap-and-trade regimes (Q58) | politicoeconomic equivalence (P39) |