Persistent Ideology and the Determination of Public Policy Over Time", mimeo Fudan

This paper investigates how public policy responds to persistent ideological shifts in dynamic politico-economic equilibria. To this end, we develop a tractable model to analyze the dynamic interactions among public policy, individuals ’ intertemporal choice and the evolution of political constituency. Analytical solutions are obtained to characterize Markov perfect equilibria. Our main finding is that a right-wing ideology may increase the size of government. Data from a panel of 18 OECD countries confirm that after controlling for the partisan effect, there is a positive relationship between the right-wing political constituency and the government size. This is consistent with our theoretical prediction, but hard to explain by existing theories. JEL Classification: D72 E6